FISCHER IMAGING CORP, S-2, 1996-05-10

FISCHER IMAGING CORP
S-2, 1996-05-10
X-RAY APPARATUS & TUBES & RELATED IRRADIATION APPARATUS

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 10, 1996
REGISTRATION NO.
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM S-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------
FISCHER IMAGING CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 36-2756787
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
</TABLE>
12300 NORTH GRANT STREET
DENVER, COLORADO 80241
(303) 452-6800
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)

MORGAN W. NIELDS
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
FISCHER IMAGING CORPORATION
12300 NORTH GRANT STREET
DENVER, COLORADO 80241
(303) 452-6800
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------------
Copies to:
<TABLE>
<S> <C>
PAUL HILTON, ESQ. DAVID J. SEGRE, ESQ.
N. ANTHONY JEFFRIES, ESQ. KENNETH M. SIEGEL, ESQ.
DAVIS, GRAHAM & STUBBS LLP WILSON SONSINI GOODRICH & ROSATI
370 SEVENTEENTH STREET, SUITE 4700 PROFESSIONAL CORPORATION
DENVER, COLORADO, 80202 650 PAGE MILL ROAD
(303) 892-9400 PALO ALTO, CALIFORNIA 94304
(415) 493-9300
</TABLE>
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
---------------------

If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /

If the registrant elects to deliver its latest annual report to
security-holders, or a complete and legible facsimile thereof, pursuant to Item
11(a)(1) of this form, please check the following box. / /

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

CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
==================================================================================================
PROPOSED MAXIMUM
OFFERING PRICE PROPOSED MAXIMUM
TITLE OF SHARES AMOUNT TO BE PER AGGREGATE AMOUNT OF
TO BE REGISTERED REGISTERED(1) SHARE(2) OFFERING PRICE(2) REGISTRATION FEE
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $.01
per share (and associated
Preferred Stock Purchase
Rights)..................... 1,552,500 shares $12.4375 $19,309,218.75 $6,658.35
==================================================================================================
</TABLE>

(1) Includes 202,500 shares that the Underwriters have the option to purchase
from the Company to cover over-allotments, if any, and 150,000 shares to be
sold by the Selling Stockholders.
(2) The price is estimated solely for the purpose of calculating the
registration fee pursuant to Rule 457(c) promulgated under the Securities
Act of 1933, as amended, and represents the average of the high and low
prices of a share of Common Stock on May 6, 1996, as reported on the Nasdaq
National Market.

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 COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================

<PAGE> 2

FISCHER IMAGING CORPORATION

CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K

<TABLE>
<CAPTION>
REGISTRATION STATEMENT ITEM AND HEADING PROSPECTUS CAPTION OR LOCATION
------------------------------------------- -------------------------------------------
<C> <S> <C>
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus... Outside Front Cover Page of Registration
Statement; Outside Front Cover Page of
Prospectus
2. Inside Front and Outside Back Cover Pages
of Prospectus............................ Inside Front and Outside Back Cover Pages
of Prospectus; Incorporation of Certain
Documents by Reference
3. Summary Information, Risk Factors and Ratio
of Earnings to Fixed Charges............. Prospectus Summary; Risk Factors
4. Use of Proceeds............................ Use of Proceeds
5. Determination of Offering Price............ Not Applicable
6. Dilution................................... Not Applicable
7. Selling Security Holders................... Principal and Selling Stockholders
8. Plan of Distribution....................... Outside Front Cover Page of Prospectus;
Underwriting
9. Description of Securities to be
Registered............................... Prospectus Summary; Risk Factors; Price
Range of Common Stock; Dividend Policy;
Capitalization; Incorporation of Certain
Documents by Reference
10. Interests of Named Experts and Counsel..... Legal Matters; Experts
11. Information with Respect to the
Registrant............................... Outside Front Cover Page of Prospectus;
Prospectus Summary; Risk Factors; Use of
Proceeds; Price Range of Common Stock;
Dividend Policy; Capitalization; Selected
Consolidated Financial Data; Management's
Discussion and Analysis of Financial
Condition and Results of Operations;
Business; Management; Principal and
Selling Stockholders; Shares Eligible for
Future Sale; Consolidated Financial
Statements; Incorporation of Certain
Documents by Reference
12. Incorporation of Certain Information by
Reference................................ Incorporation of Certain Documents by
Reference
13. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.............................. Not Applicable
</TABLE>
<PAGE> 3

***************************************************************************
* *
* 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. *
* *
***************************************************************************

SUBJECT TO COMPLETION, DATED MAY 10, 1996
PROSPECTUS
dated , 1996

1,350,000 SHARES

[LOGO]

COMMON STOCK

Of the 1,350,000 shares of Common Stock offered hereby, 1,200,000 shares are
being sold by Fischer Imaging Corporation (the "Company"), and 150,000 shares
are being sold by certain stockholders of the Company (the "Selling
Stockholders"). See "Principal and Selling Stockholders." The Company will not
receive any proceeds from the sale of shares by the Selling Stockholders.

The Common Stock is quoted on the Nasdaq National Market under the symbol
"FIMG." On May 9, 1996, the last reported sale price of the Common Stock was
$13.125. See "Price Range of Common Stock."

SEE "RISK FACTORS" COMMENCING ON PAGE 5 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.

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.

<TABLE>
<CAPTION>
====================================================================================================
PROCEEDS TO
PRICE TO UNDERWRITING PROCEEDS TO SELLING
PUBLIC DISCOUNT(1) COMPANY(2) STOCKHOLDERS(2)
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------
Per Share........... $ $ $ $
- ----------------------------------------------------------------------------------------------------
Total(3)............ $ $ $ $
====================================================================================================
</TABLE>

(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."

(2) Before deducting offering expenses payable by the Company and certain
Selling Stockholders estimated at $350,000, and $10,000, respectively.

(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 202,500 additional shares of Common Stock solely to cover
over-allotments, if any, at the Price to Public less the Underwriting
Discount. If the Underwriters exercise this option in full, the total Price
to Public, Underwriting Discount and Proceeds to Company will be
$ , $ and $ , respectively. See "Underwriting."

The shares of Common Stock are offered by the Underwriters subject to prior sale
when, as and if delivered to and accepted by the Underwriters and subject to
their right to reject any order in whole or in part. It is expected that
delivery of the certificates representing the shares of Common Stock will be
made at the offices of Piper Jaffray Inc. in Minneapolis, Minnesota on or about
, 1996.

PIPER JAFFRAY INC. NEEDHAM & COMPANY, INC.
<PAGE> 4

FISCHER IMAGING CORP [LOGO]

Fischer Imaging Corporation designs, manufacturers and markets specialty
and general purpose medical imaging systems for the diagnosis and treatment of
disease. The Company's newest product lines are directed towards medical
specialties in which image-guided, minimally-invasive therapies are replacing
open surgical procedures.

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

PICTURE 1

-----------------------------------
Mammotest stereotactic core needle
biopsy system

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<C> <S> <C>
- ------------------------------------------ ------------------------------------------

PICTURE 2 PICTURE 3

- ------------------------------------------ ------------------------------------------
Mammovision breast biopsy workstation SENOSCAN full-field digital mammography
system (in development)
</TABLE>

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS MAY ENGAGE IN PASSIVE
MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ NATIONAL MARKET IN
ACCORDANCE WITH RULE 10B-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED. SEE "UNDERWRITING."
---------------------

Fischer(R), Fischer Imaging(R), Mammotest(R), Mammovision(R), SENOSCAN(R),
EPIC(R), and TRAUMEX(R) are registered trademarks of, and HFX(TM), EPACE(TM),
EP/Stim(TM) and Target on Scout(TM) are trademarks of, the Company. The
registered trademarks of other companies are also used in this Prospectus.

2
<PAGE> 5

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and Consolidated Financial
Statements and Notes thereto appearing elsewhere in this Prospectus. Except
where otherwise indicated, the information contained in this Prospectus assumes
that the Underwriters' over-allotment option is not exercised. This Prospectus,
including the information incorporated by reference herein, contains
forward-looking statements that involve risks and uncertainties. The Company's
actual results may differ materially from the results discussed in the
forward-looking statements. Factors that might cause such a difference include,
but are not limited to, those discussed in "Risk Factors."

THE COMPANY

Fischer Imaging Corporation (the "Company") designs, manufactures and
markets specialty and general purpose medical imaging systems for the diagnosis
and treatment of disease. The Company's newest product lines are directed
towards medical specialties in which image-guided, minimally-invasive therapies
are replacing open surgical procedures. These products are used primarily in the
diagnosis and treatment of breast cancer, heart disease and vascular disease.
The Company also designs and manufactures specialty x-ray imaging components and
subsystems for several leading medical products companies as an original
equipment manufacturer ("OEM") and sells general radiology systems for use in
hospitals, clinics and physicians' offices.

The Company is a leader in the development of imaging systems addressing
the diagnosis and treatment of breast cancer. Breast cancer is the leading cause
of cancer death among women aged 40 to 55 and the second leading cause of cancer
death among all women in the United States. The Company estimates that the
direct costs for screening, diagnosis and treatment of breast cancer in the
United States were approximately $8.5 billion in 1995. The Company offers a full
line of imaging systems intended for the breast cancer market including
diagnostic mammography, stereotactic core needle biopsy and ultrasound breast
imaging. In addition, the Company is currently developing a full-field digital
mammography system. The Company's Mammotest stereotactic core needle biopsy
system pioneered the development of the market for core needle biopsy, a
cost-effective, less-invasive alternative to surgical biopsy, which has been
rapidly adopted over the past several years. Approximately 500 Mammotest systems
have been sold worldwide since 1990 and the Company believes this represents the
majority of prone stereotactic core needle biopsy systems sold to date. In
addition, the Company's SENOSCAN digital mammography system in development may
represent a significant technological advance in the imaging of breast tissue,
especially in younger women. Current film screen mammography technology is
limited in its ability to image the dense breast tissue of younger women.

The Company is also focused on imaging systems intended for the
electrophysiology ("EP") and endovascular procedure markets. EP procedures
generally attempt to diagnose and treat cardiac arrhythmia (irregular
heartbeat), such as ventricular tachycardia (very rapid heartbeat), and are
increasingly performed in dedicated EP laboratories requiring specialized x-ray
imaging equipment. The Company offers a full range of specialty EP imaging
systems, stimulators and recorders for use in the growing number of diagnostic
EP study procedures and EP device implantations. The Company's EP/X and EP/X2
imaging systems offer specially designed features for the electrophysiologist at
cost-effective prices. The Company's 2000 Series specialized endovascular
imaging systems are targeted for use by the vascular surgeon in conjunction with
the growing number of image-guided, less-invasive procedures performed in the
operating room, including carotid and peripheral artery stenting, laparoscopic
cholecystectomy, and stent grafts in development for abdominal aortic aneurysm
("AAA").

Key elements of the Company's growth strategy include:

- Respond rapidly to clinical innovations. By maintaining close
relationships with leading physicians who develop new clinical techniques,
the Company intends to maintain a leading position in the development of
innovative imaging products that enable cost-effective, minimally-invasive
procedures.

- Focus on the breast cancer market. The Company has pioneered stereotactic
core needle breast biopsy products and is focused on developing and
selling products for use in breast cancer screening, diagnosis and
treatment. In addition, the Company is leveraging its leading
technological position in this market

3
<PAGE> 6

to develop new breast imaging and biopsy products using full-field
digital, ultrasound and magnetic resonance imaging technology.

- Develop proprietary products for image-guided, minimally-invasive
procedures. The Company believes that the acceptance of minimally-invasive
procedures will result in a greater need for innovative imaging systems.
The Company intends to continue to offer proprietary products serving
emerging medical specialties focused on breast cancer, EP and endovascular
procedures.

- Leverage OEM relationships. The Company intends to maintain strong OEM
relationships with leading medical equipment manufacturers. These
relationships provide the Company with opportunities to share in the
development and use of new technologies, to receive third party funding
for new product development, to increase manufacturing volumes for
components and subsystems used in other products and, in most cases, to
maintain an ownership interest in product design.

- Expand international sales and strengthen domestic sales channels. The
Company intends to continue to expand its international sales through its
offices in Europe and Australia and recently China. In addition, the
Company intends to strengthen its domestic sales channels by emphasizing
cooperative efforts between its dealer network and direct sales force.

The Company currently markets its products domestically through its direct
sales force and certain dealers. The Company currently has approximately 30
direct sales people whose territories primarily cover large metropolitan areas
and approximately 30 independent dealers which cover the remainder of the United
States. The Company's products are sold internationally through 10 direct sales
people and 50 independent dealers. The Company is expanding its international
sales efforts to serve medical markets outside the United States since many of
these countries are improving their healthcare infrastructures.

The Company was incorporated in the state of Minnesota in 1973 and was
reincorporated in Delaware in 1991. As used in this Prospectus, the term
"Company" refers to Fischer Imaging Corporation, a Delaware corporation, and its
subsidiaries, and to its predecessor, a Minnesota corporation. The Company's
principal offices are located at 12300 North Grant Street, Denver, Colorado,
80241 and its telephone number is (303) 452-6800.

4
<PAGE> 7

THE OFFERING

<TABLE>
<S> <C>
Common Stock offered by the Company.............. 1,200,000 shares
Common Stock offered by the Selling
Stockholders................................... 150,000 shares
Total Common Stock offered..................... 1,350,000 shares
Common Stock to be outstanding after the
Offering....................................... 8,215,743 shares(1)
Use of proceeds.................................. To repay certain indebtedness and for
general corporate purposes. See "Use of
Proceeds."
Nasdaq National Market symbol.................... FIMG
</TABLE>

SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)

The following table sets forth summary consolidated financial data of the
Company and should be read in conjunction with the Consolidated Financial
Statements and related Notes thereto and other financial information included
therein.

<TABLE>
<CAPTION>
MARCH 31, 1996
--------------------------
ACTUAL AS ADJUSTED(3)
------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital.......................................................................... $25,168 $ 39,623
Total assets............................................................................. 56,897 66,278
Total debt............................................................................... 5,870 796
Total stockholders' investment........................................................... 35,608 50,063
</TABLE>

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

(1) Includes 1,333,333 shares of Series D Convertible Preferred Stock which may
be converted into an equal number of shares of Common Stock. Excludes
921,500 shares of Common Stock issuable upon exercise of stock options
outstanding as of March 31, 1996 at a weighted average exercise price of
$8.46 per share.

(2) See Note 2 of Notes to Consolidated Financial Statements.

(3) Adjusted to reflect the sale of the 1,200,000 shares of Common Stock offered
by the Company hereby at an assumed offering price of $13.125 per share and
the application of the estimated net proceeds therefrom. See "Use of
Proceeds."

5
<PAGE> 8

RISK FACTORS

An investment in the Common Stock offered hereby involves certain risks. In
addition to the other information contained in this Prospectus, prospective
investors should carefully consider the following risk factors before making an
investment.

OPERATING PERFORMANCE

In 1995, the Company generated over $2.2 million of net earnings and has
had net earnings in each of its last four quarters, while in 1994, it
experienced a net loss of $5.6 million and, in 1993, had breakeven results. In
1994, the Company recorded a $2.4 million restructuring provision for the
estimated cost of implementing a restructuring plan to refocus on its core
business. In 1994, the Company also recorded $1.9 million of non-restructuring
charges, including inventory write-downs and increases in reserves. The
Company's 1993 operating performance was unfavorably impacted by a $0.8 million
restructuring provision, principally for the relocation of a product line to
Denver, Colorado and the realignment of the Company's service operations. Future
profitability will depend on many factors, including demand for the Company's
products and the Company's ability to maintain or increase gross margins,
control or reduce manufacturing and other costs, implement its marketing and
sales strategies in the United States and internationally, maintain orders under
OEM agreements, renew OEM agreements on favorable terms, and develop and
introduce new products that compete successfully. There can be no assurance that
the Company will be profitable in future periods. See "Business" and
"Management's Discussion and Analysis of Results of Operations and Financial
Condition."

FLUCTUATION IN FINANCIAL RESULTS

The Company has experienced, and is likely to continue to experience,
significant quarterly and annual fluctuations in net revenues, operating results
and net income, depending on such factors as the timing of large system
shipments to customers, the timing of orders under OEM contracts and related
manufacturing and shipment scheduling, new product introductions and new
marketing programs by the Company and its competitors, delays in contract
development projects, the effect of economic conditions on the Company's
markets, the effects of managed healthcare on capital expenditures and
reimbursement, increases in marketing and research costs in relation to sales,
regulatory clearance of new products, seasonal purchasing patterns of hospitals
and the timing of purchasing decisions by customers. Additionally, because the
timing of the occurrence of such factors is difficult to anticipate and many of
the Company's costs are fixed, the Company may not be able to sufficiently
reduce its costs in periods when its revenues are less than anticipated and it
may suffer unexpected losses or lower income in these periods. See "Management's
Discussion and Analysis of Results of Operations and Financial Condition."

RISKS OF TECHNOLOGICAL CHANGE AND NEW PRODUCTS

The market for the Company's products is characterized by rapid and
significant changes in competitive technologies, evolving medical industry
standards and the frequent introduction of new products. Competing core needle
biopsy systems and other products competitive with the Company's products have
recently been introduced which could adversely affect the Company's sales,
profitability and market share. For example, a major surgical supply company is
aggressively marketing a large diameter core needle biopsy device with a
competitor's breast biopsy table. Alternative surgical procedures or
technologies or new medications may also be developed and marketed. For example,
new products based on new technologies could replace or reduce the importance of
current procedures that utilize the Company's products and render these products
uncompetitive. Accordingly, the Company's success will depend in part on its
ability to respond quickly to new product introductions, marketing campaigns,
and medical and technological changes through the development of new products.
There can be no assurance that the Company will be able to develop new products
in the future on a timely or cost-effective basis, if at all, or that the
Company's current products will not be rendered obsolete or noncompetitive. See
"Business -- Research and Development."

6
<PAGE> 9

RISKS OF NEW PRODUCT DEVELOPMENT AND MARKET ACCEPTANCE

The Company has a number of potential new products in various stages of
development. Currently, the Company's research and development efforts are
focused on the development of a full-field digital mammography system known as
SENOSCAN which is in prototype form and has not yet undergone clinical trials or
received clearance from the U.S. Food and Drug Administration ("FDA"). In
addition, significant efforts are being expended on EP systems, advanced image
processing and high frequency generator design. These products involve
technological innovation and require significant planning, design, development
and testing at the technological, product and manufacturing process levels.
These activities require significant investments in research and development,
equipment, inventory, manufacturing and marketing by the Company. Lengthy and
expensive clinical trials could also be required prior to submission to the FDA
and FDA clearance or approval. There can be no assurance that the Company will
be able to successfully design, manufacture and market these new products or
that the new products will receive FDA clearance. In addition, the Company's
newest products may be used with minimally-invasive surgical procedures and the
Company believes that it must demonstrate to physicians and managed healthcare
organizations the clinical benefits, safety, efficacy and cost-effectiveness of
its products for such procedures. In particular, the Company must demonstrate
that its products are an attractive alternative to other products and methods
that may be widely accepted. There can be no assurance that surgeons will
embrace such techniques as replacements for open surgical procedures or that
hospitals will be willing to invest in and utilize the Company's products. Lack
of widespread acceptance of these products could have a material adverse effect
on the Company's future revenues and earnings. See "Business -- Research and
Development."

PATENTS AND PROPRIETARY RIGHTS

The Company seeks to protect its proprietary rights through a combination
of technical experience, patent, trade secret and trademark protection and
nondisclosure agreements. The Company's future success will depend in part on
its ability to obtain and enforce patent protection for its products and
processes, to preserve its trade secrets and to operate without infringing on
the patent or proprietary rights of others.

In addition, the Company relies on trade secrets and proprietary know-how,
which it seeks to protect, in part, through appropriate confidentiality and
proprietary information agreements. There can be no assurance that proprietary
information or confidentiality agreements with employees, consultants and others
will not be breached, that the Company would have adequate remedies for any
breach, or that the Company's trade secrets will not otherwise become known to
or independently developed by competitors.

In April 1992, the Company filed a patent infringement lawsuit against
Lorad ("Lorad"), a division of Trex Medical Corporation ("Trex Medical"), an
indirect majority-owned subsidiary of Thermo Electron Corporation, in the United
States District Court for the District of Colorado alleging that Lorad had
infringed a Company patent covering its Mammotest stereotactic breast biopsy
system. The action seeks to enjoin Lorad and its agents from the manufacture,
use and sale of their allegedly infringing stereotactic breast biopsy system.
The Company is also seeking treble damages and attorneys' fees. The Company
intends to seek an early trial date for this litigation, although it appears
that the suit may not come to trial until 1997. The Company has incurred and
will continue to incur substantial costs in connection with the Lorad
litigation, and

7
<PAGE> 10

could incur substantial costs in other suits in which the Company may assert its
patent rights against others or in defending itself against suits brought by
others.

The Company has received notice from the holder of a U.S. patent alleging
infringement by certain of the Company's products and offering the Company a
license to use the patent on terms that were not acceptable to the Company.
Although the Company has not concluded its review of the patent, the Company
believes that, if required to take a license to the patent, any license fees
payable would not have a material adverse effect on the Company's financial
position. See "Business -- Patents and Proprietary Rights."

COMPETITION

The Company encounters and expects to continue to encounter intense
competition in the sale of its products. The Company believes that the principal
competitive factors affecting the market for its products include the clinical
aspects of the products, product features, product performance and quality,
upgrade flexibility, price and customer service. The Company's competitors
include large multinational corporations and their operating units, including GE
Medical Systems, Siemens AG ("Siemens"), Hitachi Medical Corporation
("Hitachi"), Toshiba America Medical Systems, Inc. ("Toshiba"), Shimadzu
Precision Systems, Inc. -- Medical Systems Division ("Shimadzu") and Picker
International, Inc. ("Picker"), as well as a number of other companies such as
Trex Medical. These companies typically have larger installed customer bases and
far greater financial, management, manufacturing, sales and marketing and other
resources than the Company. As a result, they may be able to adapt more quickly
to new or emerging technologies and changes in customer requirements, or to
devote greater resources to the development, manufacture, promotion and sale of
their products than the Company. Moreover, a significant portion of the
Company's sales are to medical equipment companies who integrate the Company's
products into their own systems or resell these products under their own label.
There can be no assurance that such companies will not choose to purchase from
alternative sources or internally manufacture competing products. In some cases,
products sold by these companies compete with products offered by the Company
and its independent dealers. The Company may also face competition from vendors
selling used x-ray imaging equipment, particularly general radiology systems, at
prices substantially below the prices of the Company's products. In addition,
competition could increase if new companies enter the market or if existing
competitors expand their product lines or intensify efforts within existing
product lines. For example, a competitor recently announced the commercial
introduction of an ultrasound-based breast imaging system which it claims will
reduce the number of breast biopsies performed. There can be no assurance that
the Company's current products or products under development will be sufficient
to enable it to compete effectively. In addition, the Company also competes for
acquisition opportunities, OEM and service contracts and experienced personnel.
See "Business -- Competition."

SIGNIFICANT OEM AGREEMENTS

In 1995, sales under OEM contracts constituted approximately 40% of the
Company's total revenues. GE Medical Systems, the holder of a 19% interest in
the Company, was the Company's largest OEM customer in 1995, accounting for
approximately 10.3% of its total revenues. Many of these OEM customers are also
competitors of the Company and have larger installed customer bases and far
greater financial, management, manufacturing, sales and marketing and other
resources than the Company. The business strategies and manufacturing practices
of the Company's OEM customers are subject to change and such changes may result
in decisions by these customers to seek other sources for products currently
manufactured by the Company or to manufacture these products internally.
Additionally, these OEM customers have increasingly sought to obtain price
concessions from the Company or the pass through of cost savings achieved by the
Company in the form of lower prices. The Company's OEM contracts are usually
non-exclusive. OEM customers generally may modify, limit or terminate the
contract or purchase orders under the contract on short notice with modest or no
penalties. OEM customer orders may be influenced by factors relating to the OEM
customer's business such as sales of the product, changes in product or
marketing strategy, changes in components of the end product manufactured by
others and development of new products. Additionally, the timing of product
orders under these OEM contracts has fluctuated and is likely to continue to
fluctuate on a quarterly or annual basis. Under these OEM contracts, the Company
is required to design, develop and

8
<PAGE> 11

manufacture its products to meet the specifications of the OEM customers and
from time to time the Company may be required to correct deficiencies identified
in these products. These agreements involve complex products and changing
product specifications and requirements that may lead to the renegotiation of
these agreements from time to time. These negotiations may result in
disagreements which could adversely affect relationships with OEM customers.
Moreover, the Company's OEM contracts do expire and revenues under OEM contracts
may decline significantly. The Company may not be able to replace revenues lost
in such situations. There can be no assurance that the Company will be able to
maintain its existing, or establish new, OEM relationships and any failure to do
so could have a material adverse effect on its business and profitability. See
"Business -- OEM Agreements" and "-- Relationship with GE Medical Systems."

MANUFACTURING AND OPERATING RISKS

The Company develops and manufactures innovative and sophisticated products
for minimally-invasive breast cancer, electrophysiology, endovascular and
interventional markets as well as a broad line of products for the general
radiology market. The scope of the product lines offered and the need for
product customization requires a number of separate manufacturing processes and
components and significant management and engineering time and expertise.
Additionally, as the Company develops new products it will be required to refine
the prototypes of these products and develop new processes to manufacture these
products in commercial quantities. The Company has encountered and may continue
to encounter difficulties involving inventory supply, length of production
cycles and shortages of manufacturing personnel. Due to the shifting demand for
the Company's products and the high fixed costs associated with manufacturing
these products, the Company may encounter difficulty managing its operating
costs. There can be no assurance that the Company will be able to reliably or
efficiently manufacture its existing or new products at commercially reasonable
costs on a timely basis, if at all. Failure to effectively manage the
development and manufacture of its products could adversely effect the Company's
business and results of operations.

DEPENDENCE ON KEY SUPPLIERS

Many of the components used by the Company in existing products and
products under development are purchased from single sources. While the Company
believes that most of these components are available from alternate sources on
reasonable terms, an interruption in the delivery of these or other supplies
would require the Company to qualify alternative components or vendors. There
can be no assurance that the Company would be able to obtain components from
alternate sources on a timely basis and on a commercially reasonable basis, if
at all, and that the Company would not suffer a material adverse effect as a
result. See "Business -- Manufacturing."

GOVERNMENT REGULATION; NO ASSURANCE OF REGULATORY APPROVAL

The Company's business is subject to substantial regulation by the FDA and
equivalent agencies in foreign countries. Failure to comply with applicable
regulatory requirements can result in, among other things, civil and criminal
fines, suspensions of approvals, product recalls or seizures, injunctions and
criminal prosecutions.

FDA regulations require manufacturers of medical devices to adhere to
certain "Good Manufacturing Practices" ("GMP"), which include testing, quality
control and documentation and other procedures. The Company's manufacturing
facilities are subject to periodic inspection by the FDA. In March 1995, the
Company was issued a warning letter by the FDA concerning documentation and
other deficiencies at its Denver facility. The Company rectified these
deficiencies and resolved this matter with the FDA in June 1995. In September
1995, the Company received a warning letter from the FDA with respect to
documentation and other deficiencies at its Chicago facility. The Company
believes it has corrected the deficiencies discussed in that letter and is in
the process of obtaining third-party certification of these corrections.
Although the Company strives to operate within the guidelines imposed by the
FDA, no assurances can be given that the FDA will not in the future find the
Company to be in violation of one or more of such regulations, which
violation(s) may adversely impact the operations of the Company. See
"Business -- Government Regulation."

9
<PAGE> 12

Each of the Company's products is required to receive FDA clearance or
approval prior to commercialization. To date, all of the Company's products have
been classified by the FDA as Class II medical devices and have been eligible
for FDA marketing clearance pursuant to the FDA's 510(k) premarket notification
process, which is generally less time consuming than the more involved premarket
approval ("PMA") process for Class III medical devices. The Company believes
that most of its currently anticipated future products and substantial
modifications to existing products will be eligible for the 510(k) premarket
notification process. However, the FDA has not yet classified full-field digital
imaging mammography systems like the SENOSCAN system being developed by the
Company. The FDA recently released an informal memorandum discussing clearance
procedures for full-view digital imaging mammography systems suggesting that
clearance may be obtained through a 510(k) application for diagnostic labelling
with clinical trials involving approximately 400 subjects. The Company plans to
submit a 510(k) application for SENOSCAN and the results of the clinical trials
to the FDA during 1996. If the FDA indicates that a PMA is required for any of
the Company's new products, the application will require extensive clinical
studies, manufacturing information and possibly a review by a panel of experts
outside the FDA. Clinical studies would need to be conducted in accordance with
FDA requirements. Failure to comply with FDA requirements could result in the
FDA's refusal to accept the data or the imposition of regulatory sanctions. FDA
review of a PMA application can take significantly longer than that for a 510(k)
premarket notification and could take several years to complete. There can be no
assurance that the necessary clearances or approvals for any of the Company's
new products, including SENOSCAN, will be obtained on a timely basis, if at all.
Failure to obtain necessary regulatory approvals, the restriction, suspension or
revocation of existing approvals, if obtained, or any failure to comply with
regulatory requirements could have a material adverse effect on the Company's
business, financial condition and results of operations.

The Company is also regulated by the FDA under the Radiation Control for
Health and Safety Act of 1968 which specifically addresses radiation emitting
products. Under this law, the Company must submit initial reports on any new
x-ray systems that require certification that they meet FDA performance
standards. In addition, the Company must submit installation reports to the FDA
certifying compliance with installation instructions of the manufacturer. A
failure to comply with these regulations could have a material adverse effect on
the Company.

Sales of medical devices outside of the United States are subject to FDA
export and international regulatory requirements that vary from country to
country. The time required to obtain approval for sale internationally may be
longer or shorter than that required for FDA clearance or approval, and the
requirements may differ. There can be no assurance that the Company will obtain
regulatory approvals in such countries or that it will not be required to incur
significant costs in obtaining or maintaining its foreign regulatory approvals.
The Company has recently obtained the certifications necessary to permit the
"CE" mark to be affixed to those products currently being sold in Europe. The CE
mark is an international symbol of quality which will become required for sales
into the member countries of the European Union beginning in mid-1998. While the
Company has obtained approval to sell into the European Union, there can be no
assurance that the Company will be able to obtain other international regulatory
approvals. Failure to obtain necessary regulatory approvals, the restriction,
suspension or revocation of existing approvals, or any failure to comply with
regulatory requirements outside the United States could have a material adverse
effect on the Company's business, financial condition and results of operations.
In addition, significant costs and delays may be encountered. See
"Business -- Governmental Regulation."

HEALTHCARE REFORM; UNCERTAINTY OF PATIENT REIMBURSEMENT

The Federal government and state, local and foreign governments have
considered or adopted and may in the future consider or adopt healthcare
policies intended to curb rising healthcare costs. Such policies include
rationing of government-funded reimbursement for healthcare services and
imposing price controls upon providers of medical products and services. In the
past, healthcare reform has adversely affected the Company by limiting hospital
budgets for the purchase of medical equipment including the Company's products.
Consolidation in the healthcare industry has reduced the number of hospitals in
the United States and, in some cases, reduced the demand for medical imaging
equipment. In addition, healthcare cost containment

10
<PAGE> 13

pressures have lead to the formation of purchasing and shared facility
arrangements among hospital chains and large medical-equipment manufacturers,
thereby reducing the demand for medical equipment and increasing centralization
of decision-making regarding equipment purchases. The Company cannot predict
what healthcare reform legislation or regulation, if any, will be enacted in the
United States or elsewhere. Significant changes in healthcare reimbursement
systems in the United States or elsewhere could have a material adverse effect
on the Company.

The Federal government also regulates the reimbursement of fees related to
certain diagnostic procedures or medical conditions and capital equipment
acquisition costs connected with services to Medicare beneficiaries. Recent
legislation has limited Medicare reimbursement of these fees. These policies may
have the effect of limiting the availability of reimbursement for procedures or
conditions, and as a result may inhibit or reduce demand by healthcare providers
for the Company's products. The Company believes that minimally-invasive
surgical procedures are generally less expensive than open or conventional
surgery and, therefore, its products used in these procedures may offer
hospitals the opportunity to reduce costs. Although hospitals may benefit from
the Company's products, they may continue to face capital constraints which
prevent them from investing in such equipment. However, widespread use of
procedures utilizing the Company's SENOSCAN digital or breast magnetic resonance
imaging mammography systems, which are currently under development, would likely
require reimbursement in excess of those currently permitted under Medicare
guidelines. As a result, the demand for these systems may be limited. While the
Company cannot predict what effect the polices of government entities and other
third party payors will have on future sales of the Company's products, there
can be no assurance that such policies would not have a material adverse impact
on the business of the Company.

RISK OF MARKET WITHDRAWAL OR PRODUCT RECALL

Complex medical devices, such as the Company's products, can experience
performance problems in the field that require review and possible corrective
action by the manufacturer. The Company periodically receives reports from users
of its products relating to performance difficulties they have encountered. To
date, the Company believes that the concerns identified in these reports were
not material and have been satisfactorily addressed and resolved. The Company
has not experienced any product withdrawal or recall, but future product
problems could result in market withdrawals or recalls of products, which could
have a material adverse affect on the Company's business, financial condition
and results of operations.

INTERNATIONAL OPERATIONS

International revenues (excluding export sales under OEM arrangements)
accounted for 10.7% and 7.9% of the Company's revenues in fiscal 1995 and 1994,
respectively, and the Company anticipates that its international business will
continue to grow in importance over the next several years. In addition, the
Company has OEM arrangements with several foreign and multinational companies
that distribute the Company's products internationally. Establishing and
expanding international sales can be expensive, managing and overseeing foreign
operations may be difficult, and products may not receive market acceptance.
Risks of doing business outside the U.S. include the following: agreements may
be difficult to enforce and receivables difficult to collect through a foreign
country's legal system; foreign customers may have longer payment cycles;
foreign countries may impose additional withholding taxes or otherwise tax the
Company's foreign income, impose tariffs or adopt other restrictions on foreign
trade; U.S. export licenses may be difficult to obtain; and the protection of
intellectual property in foreign countries may be more difficult to enforce.
There can be no assurance that the Company's international business will grow or
that any of the foregoing risks will not result in a material adverse effect on
the Company.

DEPENDENCE ON KEY PERSONNEL

The Company's future performance is partially dependent on the services of
Morgan W. Nields, the Company's Chairman, Chief Executive Officer and largest
common stockholder. The Company has no employment agreement with Mr. Nields. The
Company carries $5 million of key man life insurance on Mr. Nields. In addition,
the continued success of the Company will depend heavily on its ability to
attract and

11
<PAGE> 14

retain highly qualified engineering, management, manufacturing, marketing and
sales personnel. There can be no assurance that the Company will be able to
continue to attract and retain such people. The failure to hire and retain such
personnel could have a material adverse effect the Company.

POTENTIAL PRODUCT LIABILITY

The Company's business exposes it to potential product liability claims
which are inherent in the manufacture and sale of medical devices, and as such
the Company may face substantial liability to patients for damages resulting
from the faulty design or manufacture of products. The Company has been a
defendant from time to time in product liability actions. The Company maintains
product liability insurance with coverage limits of $5 million per occurrence
and per year in the aggregate. There can be no assurance that product liability
claims will not exceed coverage limits or that such insurance will continue to
be available at commercially reasonable rates, if at all. Consequently, a
product liability claim or other claim in excess of insured liabilities or with
respect to uninsured liabilities could have a materially adverse effect on the
business and financial condition of the Company.

CONTROL BY MANAGEMENT AND CERTAIN STOCKHOLDERS

Upon completion of this Offering, the Company's officers and directors will
beneficially own, in the aggregate, 1,757,715 shares, or 25.0% of the Company's
Common Stock. As a result, the officers and directors will be able to exercise
significant influence on the election of the Company's Board of Directors and
thereby direct the policies of the Company.

Additionally, GE Medical Systems owns 1,333,333 shares of the Company's
Series D Convertible Preferred Stock that is convertible at any time, at the
option of the holder, into an equivalent number of shares of Common Stock.
Although the Preferred Stock is non-voting, except as required by law, if GE
Medical Systems were to convert the Preferred Stock into Common Stock, it would
own 16.2% of the Company's outstanding common stock after the Offering. GE
Medical Systems would therefore be able to significantly influence the policies
of the Company. See "Business -- Relationship with GE Medical Systems."

PRICE VOLATILITY

The market price of the Common Stock could be subject to significant
fluctuations in response to variations in quarterly operating results and other
factors. In addition, the securities markets have experienced significant price
and volume fluctuations from time to time in recent years that have often been
unrelated or disproportionate to the operating performance of particular
companies. These broad fluctuations may adversely affect the market price of the
Common Stock. See "Price Range of Common Stock."

NO DIVIDENDS ON COMMON STOCK

The Company anticipates that for the foreseeable future, all earnings, if
any, will be retained for the operation and expansion of its business and that
it will not pay cash dividends. See "Dividend Policy."

CERTAIN ANTI-TAKEOVER EFFECTS

The Company's Certificate of Incorporation and Bylaws include provisions
that may be deemed to have anti-takeover effects and may delay, defer or prevent
a takeover attempt that stockholders might consider in their best interests.
These provisions include the ability of the Board of Directors to issue shares
of preferred stock in one or more series with such rights, obligations and
preferences as the Board of Directors may provide, a provision under which only
the Board of Directors may call meetings of stockholders and certain advance
notice procedures for nominating candidates for election to the Board of
Directors.

In December 1994, the Company's Board of Directors adopted a stockholder
rights plan and, pursuant thereto, issued preferred stock purchase rights (a
"Right") to the holders of its common stock. The Rights have certain
anti-takeover effects. If triggered, the Rights would cause substantial dilution
to a person or group of persons (other than certain exempt persons, including
Morgan W. Nields, one of the Company's founders

12
<PAGE> 15

and its Chairman of the Board and Chief Executive Officer, Kinney L. Johnson,
one of the Company's founders and a director, and GE Medical Systems) who
acquires more than 15% of the Common Stock on terms not approved by the Board of
Directors. Additionally, in connection with the Company's sale of Preferred
Stock to GE Medical Systems in June 1995, GE Medical Systems has the right to
convert the Preferred Stock for 1,333,333 shares of Common Stock, or 16.2% of
the Company's outstanding Common Stock following this Offering. In connection
with this transaction, GE Medical Systems also received certain contingent
rights, including rights to use a manufacturing license for the Company's Tilt-C
technology in return for the cancellation of the Preferred Stock in the event of
a change of control of the Company. The Rights and the Company's agreements with
GE Medical Systems could discourage or make more difficult a tender offer,
acquisition, merger or other similar transaction, even if favorable to the
Company's stockholders. See "Business -- Relationship with GE Medical Systems."

SHARES ELIGIBLE FOR FUTURE SALE

Sales of a substantial number of shares of Common Stock after this
Offering, or the perception that such sales could occur, may have a material
adverse effect on the market price of the Company's Common Stock and could
impair its ability to raise capital through the sale of equity securities. The
Company will have approximately 6,882,000 shares of Common Stock outstanding
immediately following the Offering. As of March 31, 1996, there were 921,500
shares reserved for issuance upon exercise of outstanding stock options, 174,750
of which were then exercisable. Additionally, 1,333,333 shares of the Company's
Preferred Stock, which are convertible at any time into an equivalent number of
shares of Common Stock, are outstanding. GE Medical Systems, the holder of the
Preferred Stock, has certain demand registration rights with respect to this
stock beginning December 20, 1996, as well as certain piggyback registration
rights. See "Business -- Relationship with GE Medical Systems."

Future sales of shares of Common Stock under Rule 144 of the Securities Act
of 1933, as amended (the "Securities Act"), by existing stockholders of Common
Stock (through the exercise of registration rights or otherwise) or through the
issuance of shares of Common Stock upon the exercise of options or otherwise
could have an adverse effect on the price of the Common Stock. Pursuant to
agreements among the Underwriters and all of the Company's present officers,
directors and certain stockholders, 1,757,715 shares of Common Stock will be
eligible for sale on the expiration of lock-up agreements 90 days after the date
of this Offering, subject to the volume and other limitations set forth in Rule
144. See "Shares Eligible for Future Sale."

13
<PAGE> 16

USE OF PROCEEDS

The net proceeds to be received by the Company from the sale of the Common
Stock being offered by the Company (at an assumed offering price of $13.125 per
share), after deducting the underwriting discount and estimated expenses of this
Offering, are estimated to be approximately $14.5 million ($17.0 million if the
Underwriters' over-allotment option is exercised in full). The Company will not
receive any of the proceeds from the sale of Common Stock by the Selling
Stockholders. See "Principal and Selling Stockholders."

The Company intends to use the net proceeds of this Offering for the
following purposes: (i) to repay indebtedness under the Company's bank line of
credit ($4.0 million as of March 31, 1996), which bears interest at a floating
rate of prime plus 1% (9.25% as of March 31, 1996) and matures on February 1,
1997 and (ii) to repay up to $1.1 million of other indebtedness which bears
interest at a weighted average interest rate of 6.6% and matures at various
times in 1996. The remaining proceeds will be used for general corporate
purposes, including working capital. Although the Company is not currently
engaged in any negotiations for the acquisition of any other business, a portion
of the proceeds may be used for acquisitions. Pending such uses, the Company
intends to invest the net proceeds from the Offering in investment-grade,
short-term, interest-bearing securities. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."

PRICE RANGE OF COMMON STOCK

The Common Stock is quoted on the Nasdaq National Market under the symbol
"FIMG." The table below sets forth, for each of the periods indicated, the high
and low closing sale prices per share of the Common Stock as reported by the
Nasdaq National Market.

<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
1994
First Quarter.................................................... $ 7.50 $ 5.50
Second Quarter................................................... 6.25 3.75
Third Quarter.................................................... 5.00 3.00
Fourth Quarter................................................... 6.88 4.25
1995
First Quarter.................................................... $ 5.75 $ 3.63
Second Quarter................................................... 6.63 4.00
Third Quarter.................................................... 9.13 4.00
Fourth Quarter................................................... 11.25 8.25
1996
First Quarter.................................................... $14.75 $10.25
Second Quarter (through May 9, 1996)............................. 15.00 12.38
</TABLE>

For a recent closing sale price for the Common Stock, see the cover page of
this Prospectus.

DIVIDEND POLICY

Since becoming a public company in 1991, the Company has not declared or
paid any cash dividends on its Common Stock. If the Company does pay any
dividends on its Common Stock in the future, it will be required to pay
equivalent dividends on its Preferred Stock. The Company currently intends to
retain future earnings for use in the operation and expansion of its business
and therefore does not anticipate paying cash dividends in the foreseeable
future.

14
<PAGE> 17

CAPITALIZATION

The following table sets forth the short-term debt and capitalization of
the Company as of March 31, 1996 and as adjusted to give effect to the sale of
the 1,200,000 shares of Common Stock offered by the Company at an assumed
offering price of $13.125 per share, and the application of the estimated net
proceeds therefrom. See "Use of Proceeds." This table should be read in
conjunction with the Consolidated Financial Statements and the related Notes
thereto included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
MARCH 31, 1996
-----------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Short-term debt........................................................ $ 5,689 $ 615
======= =======
Long-term debt......................................................... 181 181
------- -------
Stockholders' investment:
Common Stock ($.01 par value) 25,000,000 shares authorized; 5,682,410
shares issued and outstanding; 6,882,410 issued and outstanding as
adjusted(1)....................................................... 57 69
Series C Junior Participating Preferred Stock ($.01 par value)
500,000 shares authorized, no shares outstanding actual or as
adjusted.......................................................... -- --
Series D Convertible Preferred Stock ($.01 par value) 1,333,333
shares authorized, issued and outstanding actual and as adjusted;
liquidation preference of $10,000,000............................. 13 13
Additional paid-in capital........................................... 35,600 50,043
Accumulated earnings................................................. 46 46
Cumulative translation adjustment.................................... (108) (108)
------- -------
Total stockholders' investment............................... 35,608 50,063
------- -------
Total capitalization......................................... $35,789 $50,244
======= =======
</TABLE>

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

(1) Excludes 921,500 shares of Common Stock issuable upon exercise of stock
options outstanding at a weighted average exercise price of $8.46 per share.

15
<PAGE> 18

SELECTED CONSOLIDATED FINANCIAL DATA

The following table sets forth certain selected consolidated financial data
and is qualified by the detailed Consolidated Financial Statements and Notes
thereto included elsewhere in this prospectus. The consolidated balance sheet
data as of December 31, 1994 and 1995, and the consolidated statement of
operations data for each of the three years in the period ended December 31,
1995 are derived from the Company's Consolidated Financial Statements, which
have been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their report included elsewhere herein. The consolidated balance
sheet data as of December 31, 1991, 1992 and 1993 and the consolidated statement
of operations data for each of the two years in the period ended December 31,
1992, are derived from the Company's Consolidated Financial Statements which
have been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their reports, which statements are not included herein.

The selected consolidated financial data presented below as of and for the
three-month periods ended April 2, 1995 and March 31, 1996 are derived from the
unaudited consolidated financial statements of the Company included in this
prospectus. In the opinion of management, the unaudited consolidated financial
statements reflect all normal recurring adjustments necessary to present fairly
the financial data for the unaudited periods described above. The results of
operations for the Company for the three-month period ended March 31, 1996 are
not necessarily indicative of the results of operations that may be expected for
the entire fiscal year ending December 31, 1996.

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, ---------------------
--------------------------------------------------- APRIL 2, MARCH 31,
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- ------- ------- -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues................................... $57,560 $67,082 $73,332 $68,473 $76,750 $16,625 $20,073
Cost of sales.................................. 35,235 41,098 43,741 44,526 46,905 10,695 11,588
------- ------- ------- ------- ------- ------- -------
Gross profit................................. 22,325 25,984 29,591 23,947 29,845 5,930 8,485
------- ------- ------- ------- ------- ------- -------
Operating expenses:
Research and development..................... 5,918 4,360 6,176 5,595 6,690 1,665 1,464
Selling, marketing and service............... 9,482 14,283 16,641 15,573 15,461 3,299 4,358
General and administrative................... 2,716 3,885 5,321 4,697 4,800 1,141 1,131
Restructuring provisions..................... -- -- 796 2,419 -- -- --
------- ------- ------- ------- ------- ------- -------
Total operating expenses............... 18,116 22,528 28,934 28,284 26,951 6,105 6,953
------- ------- ------- ------- ------- ------- -------
Earnings (loss) from operations.............. 4,209 3,456 657 (4,337) 2,894 (175 ) 1,532
Interest expense............................... (976) (416) (933) (1,247) (678) (255 ) (220)
Other income, net.............................. 271 62 77 (56) 61 (39 ) 111
------- ------- ------- ------- ------- ------- -------
Earnings (loss) before income taxes............ 3,504 3,102 (199) (5,640) 2,277 (469 ) 1,423
Provision (benefit) for income taxes........... 400 878 (199) 0 0 0 350
------- ------- ------- ------- ------- ------- -------
Net earnings (loss)............................ 3,104 2,224 0 (5,640) 2,277 (469 ) 1,073
Dividends and costs related to Series A
Preferred Stock.............................. 314 -- -- -- -- -- --
------- ------- ------- ------- ------- ------- -------
Net earnings (loss) attributable to common and
common equivalent shares..................... $ 2,790 $ 2,224 $ 0 $(5,640) $ 2,277 $ (469 ) $ 1,073
======= ======= ======= ======= ======= ======= =======
Net earnings (loss) per common and common
equivalent share............................. $ .65 $ .40 $ .00 $ (1.02) $ .36 $ (.08 ) $ .15
======= ======= ======= ======= ======= ======= =======
Weighted average common and common equivalent
shares outstanding........................... 4,316 5,586 5,495 5,526 6,331 5,548 7,211
======= ======= ======= ======= ======= ======= =======
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital................................ $23,676 $22,645 $19,408 $12,057 $23,968 $12,263 $25,168
Total assets................................... 39,039 53,619 56,551 46,889 55,650 46,273 56,897
Total debt..................................... 2,793 9,476 11,582 9,441 4,722 9,063 5,870
Total stockholders' investment................. 24,169 26,711 27,033 21,643 33,584 21,519 35,608
</TABLE>

16
<PAGE> 19

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of the results of operations and financial
condition should be read in conjunction with the Company's Consolidated
Financial Statements and Notes thereto appearing elsewhere in this Prospectus.
This Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ materially from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed in "Risk
Factors."

OVERVIEW

The Company designs, manufactures and markets specialty and general purpose
medical imaging systems for the diagnosis and treatment of disease. The
Company's newest product lines are directed towards medical specialties in which
image-guided, minimally-invasive therapies are replacing open surgical
procedures. These products are used primarily in the diagnosis and treatment of
breast cancer, heart disease and vascular disease. The Company also designs and
manufactures specialty x-ray imaging components and subsystems for several
leading medical products companies as an OEM and sells general radiology systems
for use in hospitals, clinics and physicians' offices.

After several years of revenue growth, the Company's revenues declined in
1994 reflecting general x-ray equipment industry trends. In 1993 and 1994, the
Company recorded restructuring provisions of $0.8 million and $2.4 million,
respectively, and, in 1994, also recorded $1.9 million of non-restructuring
charges that included inventory writedowns and increase in reserves. In 1995 the
Company's revenue increased and profitability was regained, reflecting better
market conditions and increased OEM sales, as well as the Company's cost
containment efforts. Future profitability will depend on many factors, including
demand for the Company's products and the ability of the Company to maintain or
increase gross margins, control manufacturing and other costs, implement its
marketing and sales strategies in the United States and internationally,
maintain orders under OEM agreements, renew OEM agreements on favorable terms
and develop and introduce new products that compete successfully. See "Risk
Factors -- Operating Performance."

The Company has experienced and is likely to continue to experience
significant quarterly and annual fluctuations in net revenues, operating results
and net income, depending on such factors as the timing of large system
shipments to customers, the timing of orders under OEM contracts and related
manufacturing and shipment scheduling, new product introductions and new
marketing programs by the Company and its competitors, delays in contract
development projects, the effect of economic conditions on the Company's
markets, the effects of managed healthcare on capital expenditures and
reimbursement, increases in marketing and research costs in relation to sales,
regulatory clearance of new products, seasonal purchasing patterns of hospitals
and the timing of purchasing decisions by customers. Additionally, because the
timing of the occurrence of such factors is difficult to anticipate and many of
the Company's costs are fixed, the Company may not be able to sufficiently
reduce its costs in periods when its revenues are less than anticipated and may
suffer unexpected losses or lower income in these periods. See "-- Quarterly
Operating Data."

17
<PAGE> 20

RESULTS OF OPERATIONS

The following table sets forth the percentage of net revenues represented
by certain data included in the Company's statement of operations for the
periods indicated.

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, ----------------------
------------------------- APRIL 2, MARCH 31,
1993 1994 1995 1995 1996
----- ----- ----- -------- ---------
<S> <C> <C> <C> <C> <C>
Net revenues.................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales................................... 59.6 65.0 61.1 64.3 57.7
----- ----- ----- ----- -----
Gross profit.......................... 40.4 35.0 38.9 35.7 42.3
----- ----- ----- ----- -----
Operating expenses:
Research and development...................... 8.4 8.2 8.7 10.0 7.3
Selling, marketing and service................ 22.7 22.7 20.1 19.8 21.7
General and administrative.................... 7.3 6.9 6.3 6.9 5.6
Restructuring provisions...................... 1.1 3.5 -- -- --
----- ----- ----- ----- -----
Total operating expenses.............. 39.5 41.3 35.1 36.7 34.6
----- ----- ----- ----- -----
Earnings (loss) from operations................. 0.9 (6.3) 3.8 (1.1) 7.6
Interest expense................................ (1.3) (1.8) (0.9) (1.5) (1.1)
Other income, net............................... 0.1 (0.1) 0.1 (0.2) 0.6
----- ----- ----- ----- -----
Earnings (loss) before income taxes............. (0.3) (8.2) 3.0 (2.8) 7.1
Provision for income taxes...................... 0.3 0.0 0.0 0.0 1.7
----- ----- ----- ----- -----
Net earnings (loss)............................. 0.0% (8.2)% 3.0% (2.8)% 5.3%
===== ===== ===== ===== =====
</TABLE>

THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THREE MONTHS ENDED APRIL 2, 1995

Net Revenues. First quarter 1996 net revenues were $20,073,000, an increase
of 20.7% from first quarter 1995 revenues of $16,625,000. Revenue growth for the
first quarter of 1996 reflects expanded OEM revenues, principally Tilt-C systems
sold to GE Medical Systems, improved sales of mammography and general
radiography products, principally through the Company's direct sales channel,
and service revenue improvements. In the first quarter of 1996, the Company
experienced a decline in revenues from international direct and dealer channels
compared to the first quarter of 1995 due primarily to a large system sale that
occurred in the first quarter of 1995. The Company does not believe the reduced
international revenues in the first quarter of 1996 is indicative of
international revenues for the entire year.

Gross Profit. For the first quarter of 1996, gross profit expressed as a
percentage of net revenues was 42.3%, up from 35.7% for the first quarter of
1995, principally due to reductions in manufacturing costs as well as higher
absorption of manufacturing costs associated with increased volumes. Gross
margins also benefited from increases in high margin service revenues.

Research and Development Expenses. Research and development expenses for
the first quarter of 1996 and 1995 were $1,464,000 and $1,665,000 respectively,
a $201,000, or 12.1%, decrease. As a percentage of net revenues, research and
development expenses decreased to 7.3% for the first quarter of 1996 from 10.0%
for the first quarter of 1995. The decrease is primarily attributable to
engineering efforts temporarily assigned to product enhancement and other
production activities during the first quarter of 1996. The Company anticipates
that these engineering efforts will be refocused on research and development
activities during the second quarter of 1996.

Selling, Marketing and Service Expenses. Selling, marketing and service
expenses for the first quarter of 1996 and 1995 were $4,358,000 and $3,299,000,
respectively, or 21.7% and 19.8% of net revenues, respectively. The increase in
selling, marketing and service expense as a percentage of net revenues reflects
increases in sales through the direct sales channel, for which the Company
incurred commission expenses, as compared to the comparable three months of
1995.

18
<PAGE> 21

General and Administrative Expenses. General and administrative expenses
for the first quarter of 1996 were $1,131,000, or approximately the same as the
$1,141,000 for the first quarter of 1995. General and administrative expenses
declined as a percentage of net revenues from 6.9% to 5.6%, due primarily to an
increased level of net revenues.

Interest Expense. Interest expense for the first quarter of 1996 and 1995
was $220,000 and $255,000, respectively. The decrease from 1995 to 1996 is
principally due to reductions in the outstanding borrowings under the Company's
revolving line of credit and other borrowing arrangements.

Net Earnings (Loss). For the first quarter of 1996, the Company reported
net earnings of $1,073,000 compared with a net loss of $469,000 for the first
quarter of 1995. Earnings for the first quarter of 1996 were favorably impacted
by the results of ongoing cost reduction efforts and by increased OEM revenues
and sales of mammography products, principally through the direct sales channel,
as compared to the first quarter of 1995.

1995 COMPARED TO 1994

Net Revenues. Net revenues for 1995 increased 12.1% to $76.8 million from
$68.5 million. The revenue increase was primarily due to OEM sales increases,
principally Tilt-C systems sold to GE Medical Systems, as well as a 7% increase
in mammography systems revenues, sold through the Company's direct sales channel
and through dealers.

Gross Profit. Gross profit as a percentage of net revenues increased from
35.0% in 1994 to 38.9% in 1995. This increase was primarily due to improvements
in margins for OEM products, increases in high margin service revenue, and the
favorable effects of efforts to improve factory utilization and reduce
manufacturing costs.

Research and Development Expenses. Research and development expenses in
1995 were $6.7 million, as compared to $5.6 million in 1994. As a percentage of
net revenues, research and development expenditures increased from 8.2% in 1994
to 8.7% in 1995. The Company has maintained its commitment to research and
development as the key to its long-term success. The 1995 increase in
expenditures is primarily related to the development of digital imaging products
for mammography.

Selling, Marketing and Service Expenses. Selling, marketing and service
expenses for 1995 amounted to $15.5 million, approximately the same level as
1994. As a percentage of net revenues, selling, marketing and service was
reduced from 22.7% to 20.1%, primarily as a result of the Company's decision to
utilize an improved and expanded dealer network for the sale of its products,
with the efforts of the Company's direct sales force concentrated more
efficiently in major markets. The result of this redirection of sales effort was
a reduction in commissions and other personnel-related selling costs.
Improvements in accounts receivable collection activities also contributed to
the decline in selling, marketing and service expense, as reserve requirements
for uncollectible accounts were reduced.

General and Administrative Expenses. General and administrative expenses
were $4.8 million in 1995 compared to $4.7 million in 1994, or 6.3% and 6.9% of
net revenues, respectively. The reduction in general and administrative expenses
as a percentage of net revenues was primarily due to a reduction in legal
expenses related to the Lorad patent infringement litigation in 1995 as compared
to 1994.

Restructuring and Other Charges. As more fully discussed in the following
section "1994 Compared to 1993", 1994 results included a $2.4 million charge
before tax for the estimated cost of implementing a restructuring plan to
refocus the business on its core competencies. The third quarter of 1994 also
included $1.9 million of non-restructuring expenses.

Interest Expense. Interest expense amounted to $0.7 million in 1995 and
$1.2 million in 1994. The 1995 decrease was primarily due to a decrease in
average amounts outstanding under the Company's line of credit and reductions in
the amount payable under the non-competition agreement entered into in
connection with the Company's purchase of Bloom Associates Ltd. in September
1992. The decrease in average amounts

19
<PAGE> 22

outstanding was due to the June 1995 equity investment by GE Medical Systems and
improved operating results. See "Liquidity and Capital Resources."

1994 COMPARED TO 1993

Net Revenues. Net revenues for 1994 declined 6.6% to $68.5 million from
$73.3 million. The revenue decline was primarily due to the reduction in sales
of general radiology systems that are sold primarily through the Company's
dealer channel. Sales of mammography systems, sold through the Company's direct
sales channel as well as through dealers, decreased approximately 14%. The
increase in OEM sales partially offset these shortfalls.

Gross Profit. Gross profit as a percentage of net revenues declined to
35.0% in 1994 from 40.4% in 1993. This decline was primarily due to increased
manufacturing variances, in large part caused by the decline in volume, as well
as a decline in average selling prices caused generally by the pricing
strategies of competitors.

Research and Development Expenses. Research and development expenses in
1994 were $5.6 million compared to $6.2 million in 1993. As a percentage of net
revenues, research and development expenses were 8.2% in 1994 and 8.4% in 1993.

Selling, Marketing and Service Expenses. Selling, marketing and service
expenses for 1994 amounted to $15.6 million, reflecting a reduction of
approximately $1.0 million, or 6.4%, from 1993. As a percentage of net revenues,
these expenses were 22.7% in both 1994 and 1993. While the dollar reduction was
generally due to variable expenses associated with the revenue decline,
additional expense reductions were generated in marketing by refocusing
marketing resources into more productive activities. Significant dollar savings
were generated in advertising and marketing shows and exhibits.

General and Administrative Expenses. General and administrative expenses
were $4.7 million in 1994 compared to $5.3 million in 1993. These amounts
represent 6.9% and 7.3% of net revenues in 1994 and 1993, respectively. The
decrease in general and administrative expenses was due primarily to the
reduction in legal fees from the level incurred in 1993 as a result of the
commencement of a patent infringement action against Lorad in April 1992.

Restructuring and Other Charges. In the third quarter of 1994, the Company
recorded a charge of $2.4 million before tax for the estimated cost of
implementing a restructuring plan to refocus the business to its core
competencies. The key elements of this plan included discontinuing certain low
volume tangential products from the Company's product portfolio, redesigning and
streamlining the manufacturing process and upgrading certain installed customer
equipment. Approximately $1.8 million of the restructuring charge related to
inventory written down to reflect the impact of discontinuing certain products.
Approximately $0.4 million of the restructuring charge was committed to product
enhancement, and the remainder represented charges for severance associated with
streamlining manufacturing and business processes.

In the third quarter of 1994 the Company also recorded $1.9 million of
non-restructuring expenses. Approximately $1.0 million of these expenses was due
to inventory write-downs while the remainder reflected increased reserves.

Interest Expense. Interest expense amounted to $1.2 million in 1994 and
$0.9 million in 1993. The 1994 increase was due to an increase in the average
amount outstanding under the Company's line of credit during 1994, an increase
in the interest rate applicable to the line of credit, and an increase in the
Company's borrowings under capital lease obligations, partially offset by the
reduction in the amount payable under the noncompetition agreement entered into
in connection with the Company's September 1992 purchase of Bloom Associates,
Ltd.

INCOME TAXES

The Company's effective tax rate was 0% in 1995 and 1994. The 0% effective
tax rate in 1995 was the result of net operating profits, offset by a reduction
in the valuation allowance on deferred tax assets of approximately $1.5 million.
The 0% effective tax rate in 1994 was the result of net operating losses
generated

20
<PAGE> 23

for tax purposes, offset by a valuation allowance on deferred tax assets of
approximately $2.8 million. At December 31, 1995, the Company had approximately
$2.2 million of net current deferred tax assets, which represent the amount of
tax benefits on existing net deductible temporary differences and tax credits
that are more likely than not to be realized against taxable income of future
years.

Based upon anticipated earnings for the year, an anticipated reduction in
the valuation allowance on deferred tax assets, and a review of other factors
giving rise to differences between statutory and effective income tax rates, the
Company has estimated its effective tax rate for the year ended December 31,
1996 to be approximately 25.0% and, accordingly, has provided income taxes in
the first quarter of 1996 of $350,000, against its first quarter earnings before
taxes of $1.4 million.

FUTURE TRENDS AND UNCERTAINTIES

Although diagnostic imaging products consume only approximately one-half of
one percent of total healthcare costs, the Company believes that the need to
provide lower cost alternatives and improve product functionality and
utilization is clearly a key priority for companies serving this market. The
Company has focused its product development for the past several years on
less-invasive, more cost effective alternatives to complement conventional
methods and procedures. Management believes that all medical device companies
will be forced to develop products and technologies that address both patient
care and economic issues.

LIQUIDITY AND CAPITAL RESOURCES

Cash used in operations for the three months ended March 31, 1996 was $1.5
million compared to $0.4 million provided from operations in the same period in
1995. The increase in cash used in operations principally reflects higher
investment in inventories and reductions in customer deposits and accounts
payable, partially offset by $1.6 million of net earnings before depreciation
and amortization, as well as improved accounts receivable collection activities
which have reduced accounts receivable balances as of March 31, 1996 as compared
to April 2, 1995.

During 1995, the Company utilized $3.3 million of cash in operations and
$1.0 million in investing activities, while generating $4.8 million from
financing activities, resulting in a $0.5 million increase in cash. The
utilization of cash in operations was primarily due to an increase in working
capital caused by a higher level of net revenues and production activity.
Compared to December 31, 1994, accounts receivable at December 31, 1995
increased by $5.5 million, inventories increased by $3.1 million, and other
current liabilities decreased by $0.9 million due primarily to reduced customer
deposits. These uses of cash were partially offset by a $2.6 million increase in
accounts payable and by net earnings before depreciation and amortization of
$4.7 million. Cash utilized in investing activities during 1995 was reduced from
$1.8 million in 1994 to $1.0 million in 1995, due entirely to efforts to contain
capital expenditures not financed through capital lease arrangements. Cash
generated from financing activities during 1995 reflected the Company's June
1995 sale of 1,333,333 shares of Series D preferred stock to GE Medical Systems
for $9.5 million, net of related expenses, offset by debt reductions, including
borrowings under the Company's line of credit, totaling $4.9 million.

During 1994, the Company's operations provided $4.0 million of cash. The
Company utilized $1.8 million of cash in investing activities and $1.9 million
in financing activities, resulting in a net cash increase of $0.3 million. Cash
generated from operations was due primarily to improved accounts receivable
collection activities, which resulted in a $7.1 million reduction in accounts
receivable, and reductions in inventory and other current assets of $1.4 million
and $1.1 million, respectively, partially offset by the net loss from operations
(excluding noncash depreciation and amortization) of $3.4 million. Capital
expenditures not financed through capital lease arrangements for 1994 amounted
to $1.8 million. Net payments under the line of credit and long-term debt
repayment were $1.0 million and $1.1 million, respectively.

During 1993, the Company's operations provided $0.2 million of cash,
arising primarily from net earnings before depreciation and amortization of $2.2
million, offset by a $2.3 million decrease in accounts payable. The Company had
net borrowings of $3.3 million under line of credit facilities and repaid
approximately $1.2 million in long-term debt in 1993. The long-term debt
repayments primarily consisted of payments under

21
<PAGE> 24

a non-competition agreement that the Company entered into in connection with the
acquisition of Bloom Associates, Ltd. The Company's 1993 investing activities
utilized $2.2 million in cash for capital expenditures and $0.5 million for the
purchase of preferred stock in Tetrad Corporation.

The Company utilizes capital lease arrangements to finance some of its
equipment needs. During 1995 and 1994, the Company acquired $0.2 million and
$0.7 million, respectively, of capital equipment through capital lease
arrangements.

As of March 31, 1996, the Company had $0.6 million in cash and cash
equivalents and working capital of $25.2 million. The Company has in place a
$15.0 million working capital line of credit, which expires February 1, 1997 and
is secured by accounts receivable, inventory and fixed assets. The maximum
amount available under this line of credit is subject to borrowing base
restrictions which are a function of defined balances in accounts receivable,
inventory and fixed assets. As of March 31, 1996, borrowing availability under
this line of credit was approximately $11.0 million beyond actual borrowings as
of that date of $4.0 million. The Company believes that the estimated net
proceeds from this Offering, its current level of profitability and available
borrowing capacity will be sufficient to fund foreseeable working capital and
capital expenditure needs.

INFLATION

While inflation has not had a material impact upon the Company's operating
results in the past, there can be no assurance that the Company's business will
not be affected by inflation in the future.

QUARTERLY OPERATING DATA

The following table sets forth certain unaudited operating data for each of
the four quarters in 1994 and 1995 and the first quarter of 1996.

<TABLE>
<CAPTION>
1994 1995 1996
---------------------------------------- ------------------------------------- -------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH FIRST
QUARTER QUARTER QUARTER(1) QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
------- ------- ---------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues...................... $16,927 $17,649 $ 15,525 $18,372 $16,625 $18,065 $19,055 $23,005 $20,073
Gross profit...................... 6,547 6,342 4,354 6,704 5,930 7,379 7,316 9,220 8,485
Earnings (loss) from operations... 381 183 (4,304) (597) (175) 558 1,005 1,506 1,532
Net earnings (loss)............... 101 (69) (4,692) (980) (469) 397 883 1,466 1,073
Net earnings (loss) per share..... $ .02 $ (.01) $ (.85) $ (.18) $ (.08) $ .07 $ .13 $ .21 $ .15
</TABLE>

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

(1) Results for the third quarter of 1994 reflect restructuring and
non-restructuring expenses of $2.4 million and $1.9 million, respectively.

The preceding quarterly financial data illustrate the fluctuations in
financial results experienced by the Company. Quarterly financial results are
influenced by such factors as the timing of large system shipments to customers,
the timing of orders under OEM contracts and related manufacturing and shipment
scheduling, new product introductions and new marketing programs by the Company
and its competitors, delays in contract development projects, the effect of
economic conditions on the Company's markets, the effects of managed healthcare
on capital expenditures and reimbursement for healthcare, increases in marketing
and research costs in relation to sales, regulatory clearance of new products,
seasonal purchasing patterns of hospitals and the timing of purchasing decisions
by customers. See "Risk Factors -- Fluctuation in Financial Results."

22
<PAGE> 25

BUSINESS

OVERVIEW

STRATEGY

The Company develops innovative products for select medical markets where
evolving diagnostic and therapeutic procedures have required new imaging
technology. The key elements of the Company's growth strategy include:

- Respond rapidly to clinical innovations. The Company is a leader in
developing innovative imaging products that enable cost-effective,
minimally-invasive procedures. The Company believes that its engineering and
design expertise, as well as its close relationships with leading physicians who
develop new clinical techniques, will enable it to continue to be a leader in
new product development for diagnostic and image-guided therapies.

- Focus on the breast cancer market. The Company has pioneered stereotactic
core needle breast biopsy products and is focused on developing and selling
products for breast cancer screening, diagnosis and treatment. The Company is
leveraging its leading technological position in this market to develop new
breast imaging and biopsy products using full-field digital, ultrasound and
magnetic resonance imaging technology.

- Develop proprietary products for image-guided, minimally-invasive
procedures. The advantages of reduced patient trauma, lower costs and
demonstrated effectiveness offered by minimally-invasive procedures have
resulted in increased acceptance of these procedures, which the Company believes
will result in a greater need for specialty imaging systems. The Company intends
to continue to offer proprietary products serving the image-guided
minimally-invasive procedure markets for breast cancer, EP and endovascular
procedures.

- Leverage OEM relationships. The Company intends to maintain strong OEM
relationships with leading medical equipment manufacturers. These relationships
provide the Company with opportunities to share in the development and use of
new technologies, to receive third party funding for new product development, to
increase manufacturing volumes for components and subsystems used in other
products and, in most cases, to maintain an ownership interest in product
designs.

- Expand international sales and strengthen domestic sales channels. The
Company intends to continue to expand its international sales. The Company has
offices in Europe and Australia and has recently opened a representative office
in China to increase its international revenues and market share. In addition,
the Company intends to strengthen its domestic sales channels by emphasizing
cooperative efforts between its dealer network and direct sales force.

23
<PAGE> 26

COMPANY PRODUCTS

The Company's current proprietary products include specialty imaging
systems that serve image-guided, minimally-invasive markets, and general
radiology products. The Company also designs and manufactures specialty x-ray
imaging components and subsystems as an OEM for several leading medical
equipment manufacturers, including GE Medical Systems, Varian Associates, Inc.
("Varian"), Storz Medical AG ("Storz"), Picker International, Inc. ("Picker")
and Dornier Madizintechnik GmbH ("Dornier"). The following table summarizes the
proprietary products offered by the Company.

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
PRODUCT
LAUNCH DATE OR
DEVELOPMENT
PRODUCT DESCRIPTION STATUS
<S> <C> <C>
- -------------------------------------------------------------------------------------------------
Breast Cancer Imaging and Biopsy
Products
- -------------------------------------------------------------------------------------------------
Mammotest/Mammovision Stereotactic needle biopsy 1989/1992
system
Mammotest Plus/Mammovision Plus Stereotactic needle biopsy 1996/1996
system with 360 degree access
and expanded field of view
Performa(TM)(1) Ultrasound for diagnosis and 1996
guided core needle biopsy
HFX Diagnostic film screen 1995
mammography system
SENOSCAN Digital mammography system Clinical Trials: 1996
Magnetic Resonance Biopsy System MRI guided core needle biopsy Prototype: 1996
system
- -------------------------------------------------------------------------------------------------
Electrophysiology Products
- -------------------------------------------------------------------------------------------------
EP/X Single-plane x-ray imaging 1995
system
EP/X(2) Cost-effective bi-plane x-ray 510(k) pending
imaging system
EP/Stim Computer controlled stimulator 510(k) to be
filed in 1996
Recording systems Recording systems used in EP Various
procedures
- -------------------------------------------------------------------------------------------------
Endovascular and Interventional
Products
- -------------------------------------------------------------------------------------------------
2000 Series Endovascular imaging system 1991
for operating room
Imager III Multi-purpose interventional 1995
x-ray imaging system
- -------------------------------------------------------------------------------------------------
General Radiology Products
- -------------------------------------------------------------------------------------------------
TRAUMEX X-ray imaging system for 1995
trauma radiology
Digital X radiographic systems General radiographic systems 1995
used for chest, abdomen and
skeletal system
90 Series (with DPS-100 digital imaging Tilting table systems 1996
computer systems) including digital imaging
computer system used for
general radiographic and
fluoroscopic procedures
- -------------------------------------------------------------------------------------------------
</TABLE>

(1) Marketed for Accoustic Imaging, an indirect subsidiary of Dornier, in
conjunction with the sale of the Company's Mammotest and HFX mammography
systems. Initial sales expected to occur in 1996.

24
<PAGE> 27

BREAST CANCER IMAGING AND BIOPSY MARKETS

Market Overview

Breast cancer is the leading cause of cancer death among women in the
United States aged 40 to 55 and the second leading cause of cancer death among
all women in the United States. According to the American Cancer Society,
approximately 184,000 new cases of breast cancer are expected to be diagnosed
and approximately 44,000 women are expected to die from the disease in 1996. The
incidence of breast cancer increases with age, rising from about 100 cases per
100,000 women starting at age 40 to about 400 cases per 100,000 women at the age
of 65. It is generally believed that the large number of aging baby boomers, a
rapid increase in age related incidence and increased breast cancer screening
rates and education will lead to a greater number of women being diagnosed with
the disease. Several physician organizations and the American Cancer Society
recommend that women receive a baseline mammogram between the ages of 35 and 40,
a new mammogram every two years between the ages of 40 and 50, and an annual
mammogram thereafter. However, the Jacob's Institute of Women's Health estimates
that only about 40% of women over age 40 in the U.S. are regularly following
these guidelines. The direct costs for screening, diagnosis and treatment of
breast cancer in the United States were estimated by the Company at
approximately $8.5 billion in 1995, of which approximately $4.2 billion was
spent on diagnostic-related procedures. In response to increased public and
political awareness of breast cancer in the 1990s, federal research expenditures
for breast cancer have increased dramatically in the last six years.

Breast Cancer Screening and Diagnosis

Successful treatment of breast cancer depends in large part on the early
detection of malignant lesions in the breast. According to the National Cancer
Institute ("NCI"), the five-year survival rate decreases from more than 90% to
72% after the cancer has spread to the lymph nodes, and to 18% after it has
spread to other organs such as the lungs, liver or brain. Current methods of
detecting breast cancer typically include clinical and self examination and
screening mammography. While these methods can indicate the presence of lesions
in the breast, they cannot indicate whether the lesions are benign or malignant.
If a clinical or self examination or screening mammogram detects a lesion of a
suspicious nature, or if other symptoms of breast cancer are present, additional
diagnostic mammography is typically ordered. In addition, if the abnormality is
a mass, diagnostic ultrasound may be performed. There are more than 12,000
mammography systems in use in the United States today. According to the FDA, the
number of mammograms performed in the United States grew from 15 million in 1990
to 25 million in 1995.

If the results of a diagnostic mammogram are indeterminate, a breast biopsy
is typically performed. Two to four percent of women receiving screening
mammograms undergo biopsies, although practice patterns vary significantly. The
Company believes that 1.1 million biopsies were performed in 1995, of which
300,000 were for palpable lesions and 800,000 were for non-palpable lesions
detected by screening mammography. Seventy to ninety percent of biopsies
currently result in a benign diagnosis. The most common forms of biopsy
procedures are open surgical, stereotactic core needle and ultrasound-guided
core needle biopsies.

Open Surgical Biopsy. Open surgical biopsy has been the most commonly used
method of diagnosing breast cancer for many years. Although open surgical biopsy
typically provides the tissue sample necessary for a definitive diagnosis, the
procedure has several disadvantages. Open surgical biopsy is generally performed
in an operating room with general anesthesia. The procedure takes approximately
one hour and requires one to two days of recuperation at home. In some cases,
the deep skin incision required for the procedure and the large amount of tissue
removed may result in permanent breast disfigurement. Open surgical biopsies can
also leave internal tissue scars that can impair the ability of subsequent
mammograms to detect potentially cancerous lesions. In the United States, the
aggregate cost of an open surgical biopsy, including surgical fees and operating
room charges, ranges from approximately $2,500 to $5,000.

Stereotactic Core Needle Biopsy. Stereotactic core needle biopsy was
pioneered by the Company and a group of radiologists with the development of the
Company's Mammotest system in the late 1980s. As an alternative to open surgical
biopsy, stereotactic core needle biopsy offers a less-invasive procedure, lower
cost and minimal scarring of the breast, while maintaining accuracy in cancer
detection. Stereotactic core needle

25
<PAGE> 28

biopsies using systems such as the Company's Mammotest system can be performed
in a physician's office, breast imaging center or hospital. Although the
procedure was initially performed by radiologists, it is now being more widely
adopted by surgeons as they become aware of the accuracy and less-invasive
nature of the procedure. Surgical societies are now scheduling training
workshops for their members to learn how to perform stereotactic core needle
biopsies, and sales to surgical practices or ambulatory surgery centers have
accelerated recently. The procedure is typically billed at between $750 and
$1,200.

During the stereotactic core needle biopsy procedure, the patient lies
prone in a face down position on top of a stereotactic x-ray imaging table with
her breast protruding through an opening in the table, creating a work space
below the table for the physician. An x-ray imaging system is located on the
underside of the table that enables the physician to localize a lesion in a
three-dimensional field and accurately position the core needle within one
millimeter of the targeted lesion for sampling. During the less than one-hour
procedure, the patient is given a local anesthetic and a small nick is made in
the patient's skin. Typically, the physician takes 5 to 10 samples of tissue
from the potentially cancerous site. As with open surgical biopsy, the samples
are sent to the pathology laboratory for analysis. At the conclusion of the
procedure, the skin nick is covered by a band-aid.

The number of stereotactic core needle biopsy procedures performed has
grown rapidly in the last five years. The Company estimates that approximately
200,000 core needle biopsy procedures were performed in the United States in
1995, up from less than 500 in 1990. The increased acceptance and use of core
needle biopsy techniques has been driven by the clinical and cost advantages of
core needle biopsies, as well as a number of other factors. Improved tissue
removal systems such as the Mammotome(TM) device from Biopsys Medical, Inc.
(which can be used in conjunction with the Company's Mammotest system) have
provided surgeons with a percutaneous core needle procedure that can remove
tissue samples as effectively as a typical open surgical biopsy. Increased
public awareness of these techniques has also been a factor. Since 1993, several
television programs have aired stories on the benefits of stereotactic core
needle biopsy which the Company believes raised the awareness of women and
managed care organizations as to the cost savings and less-invasive nature of
the procedure. Finally, failure to diagnose breast cancer on a timely basis is
currently the leading cause of malpractice lawsuits against physicians, which
the Company believes is encouraging physicians to request more biopsies.

Ultrasound-Guided Core Needle Biopsy. Ultrasound imaging can play an
important adjunctive role to mammography based on its ability to characterize
masses in breast tissue. For example, benign cysts can be diagnosed reliably
with ultrasound and, with state of the art ultrasound equipment, some masses in
addition to cysts can be diagnosed as benign. Additionally, ultrasound does not
expose a patient to x-ray radiation. In general, ultrasound is underutilized as
a breast imaging modality in part because the quality of the equipment has only
recently improved to the level needed for breast imaging and because
mammographers often are not sufficiently trained in breast ultrasound imaging
techniques. Although the Company believes a significant number of non-palpable
breast lesions could be biopsied under ultrasound guidance, only a small
percentage of such biopsies are currently performed using this modality.
Nonetheless, the Company believes that the large number of breast lesions that
could be biopsied under ultrasound guidance and the ability of ultrasound to
characterize certain breast masses without the use of x-ray radiation will
result in the increased use of ultrasound for both the diagnosis of breast
masses and core needle biopsies in the future.

New Breast Cancer Diagnostic Technologies

There are a number of new and developing technologies, such as digital
mammography and magnetic resonance imaging, that may be used to detect and
diagnose breast cancer. The Company has products under development using each of
such technologies. See "Breast Cancer Imaging and Biopsy Markets -- Breast
Cancer Products Under Development."

Digital Mammography. Digital mammography provides a number of advantages
over conventional mammography. Because a digital mammography system separates
the display of a mammogram from the detection and creation of the image (a film
screen mammogram acts both as a detector and display) the contrast may be varied
on the display monitor. In this way dense breast tissue can be interpreted
appropriately

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without subjecting the patient to a second mammogram. Digital mammography may be
especially useful in screening women under age 50 due to the limited ability of
film screen mammography to image the denser breast tissue of younger women. As
reported by the American Cancer Society, women under age 50 still experience
significant incidence of breast cancer, with 23% of breast cancer cases detected
in women under age 50 (42,600 cases in 1995). Moreover, according to a
physician's insurers survey, over 70% of all malpractice payments made between
1985 and 1994 for failure to diagnose breast cancer resulted from a failure to
diagnose such cancer in women under age 50. In addition, a properly designed
digital mammography detector system can reduce the radiation required for a
diagnostic mammogram by at least a factor of two. Other benefits from a digital
mammography system include real time acquisition (film processing is not
necessary), storage of the mammogram in digital memory or on digital archival
media, computer aided diagnosis, and telemammography.

Magnetic Resonance Imaging. Magnetic resonance imaging is an evolving
modality for imaging breast cancer. Breast magnetic resonance imaging ("Breast
MR"), with the intravenous injection of a contrast agent, has been demonstrated
in clinical research to be more effective at detecting the extent of known
breast cancer as compared to film screen mammography or ultrasound. Breast MR
can detect lesions not seen on film screen mammography or ultrasound. However,
since the lesions cannot currently be diagnosed as benign or malignant with
Breast MR, there is a need for a capability to perform core needle biopsy under
MR guidance.

The Company believes that the primary use of Breast MR, combined with
biopsy capabilities, will be to stage known breast cancers, providing physicians
and patients with additional information concerning the appropriateness of
lumpectomy as opposed to mastectomy. Additionally, Breast MR is expected to be
used in patients who require frequent follow up due to the risk of breast cancer
recurrence. Typically such patients have previously undergone breast conserving
surgeries, such as partial mastectomies or lumpectomies. The Company believes
that over 1 million women have undergone breast conserving surgeries and another
100,000 women undergo them every year. The Company believes that as the
population of women who have undergone breast conserving treatments increases,
the demand for Breast MR and MR biopsy systems will also increase. In addition,
Breast MR may also be used to diagnose special cases where breast cancer may be
suspected but where film screen mammography and ultrasound produce negative
findings.

Breast Cancer Products

The Company serves the mammography market with stereotactic needle biopsy
products and screening and diagnostic mammography systems.

Mammotest/Mammovision. The Company's Mammotest stereotactic core needle
biopsy system, first introduced in 1989, is designed expressly for core needle
biopsy of the breast and represents substantial improvements over open surgical
biopsy for most patients requiring diagnosis for breast cancer. The Mammotest
system consists primarily of an elevating, prone position table, a mammographic
x-ray imaging system and a stereotactic needle guidance system. The Company is
one of only two manufacturers worldwide of prone position tables. In 1992, the
Company introduced Mammovision, the first FDA cleared charge coupled device
("CCD") imaging system that permits near real time imaging of breast tissue.
With the aid of proprietary software for the Mammovision computer, coordinates
of the lesion can be quickly calculated using a computer trackball. These
coordinates are then sent via a computer interface to the Autoguide, a motor
driven needle holder assembly that precisely aims the biopsy needle directly at
the lesion. Mammovision has become a standard for providing computer based
imaging for the Mammotest system.

Since 1990, approximately 500 Mammotest systems have been installed
worldwide, with the vast majority in the United States. The list price of the
Mammotest system with Mammovision is $225,000. A Mammovision sold separately has
a list price of $95,000.

Mammotest Plus/Mammovision Plus. The Company introduced Mammotest Plus and
Mammovision Plus in November 1995. The Mammotest Plus system permits its
operator 360 degree access to the breast and incorporates the software and
hardware features of Target on Scout and Lateral Arm that allow small breasts
(compressed to less than 2.5cm) and breasts with lesions located near the axilla
or very posterior to the chest wall to be biopsied more easily. Mammovision Plus
is a new CCD imaging system that provides an optional

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expanded field of view (10 x 5cm versus 5 x 5cm) as well as the ability to
remove the camera from the Mammotest table. This feature permits the operator to
install the Mammovision Plus camera on the Company's HFX diagnostic mammography
system. Thus, near real time digital imaging can be performed in conjunction
with standard diagnostic mammography. As a result, the cost elements of the
system can be amortized across a larger number of procedures thus effectively
expanding the Company's market for Mammotest Plus and Mammovision Plus systems.
The list price of a Mammotest Plus system with a Mammovision Plus is
approximately $280,000.

Performa 7.5 Mhz Ultrasound System. The Company has entered into an
agreement with Acoustic Imaging, an indirect subsidiary of Dornier, to
distribute the Performa dedicated ultrasound breast imaging system in
conjunction with the sale of the Company's Mammotest and HFX diagnostic
mammography systems. Performa allows core needle biopsies to be performed with
ultrasound guidance if the lesion can be visualized under ultrasound. The
Company began marketing these dedicated ultrasound breast imaging systems early
in the second quarter of 1996. The list price for the Performa breast ultrasound
system is $45,000.

HFX Mammography System. HFX is a diagnostic mammography system designed to
perform high quality, low dose breast examinations quickly, easily and
efficiently. Through a proprietary x-ray tube, the HFX generates excellent
spatial resolution, especially at the front edge of the image receptor where
magnification mammography examinations are performed. The HFX can be provided in
a two-tube configuration and integrated with the Mammotest to provide a
cost-efficient system capable of performing both mammography and stereotactic
core needle breast biopsies. The HFX mammography system ranges in price from
$50,000 to $70,000.

Breast Cancer Products Under Development

SENOSCAN digital mammography system. The Company is a leader in the
development of full-field digital mammography systems. Digital mammography
provides a number of advantages over currently available film screen
mammography, including an improved ability to image dense breast tissue, reduced
radiation dosage to the patient, real time imaging and the ability to store
images in a digital format. Additionally, digital mammography images may be
transmitted over high-speed telecommunication networks, thus allowing remote
diagnosis and review of suspicious mammograms. The Company believes that its
SENOSCAN full-field digital mammography system, which was introduced as a
prototype in late 1995, will offer all of these advantages.

The Company believes there is a large potential market for digital
mammography. The Company's SENOSCAN digital mammography system in development
may represent a significant technological advance in the imaging of breast
tissue, especially in younger women. Current film screen mammography technology
is limited in its ability to image the dense breast tissue of younger women. As
reported by the American Cancer Society, women under age 50 still experience
significant incidence of breast cancer, with 23% of breast cancer cases detected
in women under age 50 (42,600 cases in 1995).

The Company will soon install SENOSCAN systems at three locations for
clinical testing to be performed on 400 to 500 patients. The Company expects
this clinical testing to begin in the second half of 1996. This clinical testing
is being partially funded by NCI and will image patients for an agreement study
of film screen and digital mammography. The Company plans to submit a 510(k)
application, together with the results of these clinical trials, to the FDA in
late 1996, and will seek clearance of SENOSCAN for diagnostic labelling. See
"-- Government Regulation."

While the Company expects that its SENOSCAN system will cost at least three
times as much as conventional film screen mammography systems, it believes that
the increased benefits from improved imaging will more than offset the increased
capital costs. See "-- Government Reimbursement."

Prototype MR Biopsy System. The Company has designed and manufactured a
prototype MR biopsy system that is compatible with the General Electric Signa
1.5T magnetic resonance imaging system, which system constitutes a significant
portion of the 4,000 installed magnetic resonance imaging systems believed to

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be in operation in the United States. Clinical trials of the prototype system
will begin shortly to further test the system's ability to reliably biopsy
breast lesions using magnetic resonance imaging as its guidance modality. The
Company believes that the primary use of Breast MR, combined with biopsy
capabilities, will be to stage known cancers providing the physician and patient
with additional information concerning the appropriateness of lumpectomy as
opposed to mastectomy. See "Risk Factors -- Risks of New Product Development and
Market Acceptance."

ELECTROPHYSIOLOGY MARKETS

Market Overview

The Company estimates that of the 500,000 annual heart attack deaths in the
United States, more than 400,000 are related to ventricular tachycardia (very
rapid heartbeat) or other cardiac arrhythmias that may induce sudden death.
Cardiac arrhythmias are irregular heartbeats that arise when the normal pattern
of conduction of electrical impulses in the heart is disrupted. Cardiac
arrhythmias can range from isolated premature contractions to tachycardia that
may lead to life-threatening episodes of ventricular fibrillation.

Atrial fibrillation is a common, normally non-life threatening form of
atrial tachycardia. As of 1992, approximately 2.0 million people in the United
States had this condition. Atrial fibrillation is normally treated by
cardioversion at a hospital or physician's office. In cardioversion, an external
electrical shock is applied to the chest. Episodes of atrial fibrillation are a
frequent cause of strokes due to emboli (clots) formed in the heart dislodging
and blocking cerebral arteries. An industry source estimates that atrial
fibrillation causes 75,000 strokes each year.

Diagnosis and Treatment of Cardiac Arrhythmia

In 1992, over 3.7 million people in the United States suffered from some
type of cardiac arrhythmia. The treatment these patients receive typically
involves a diagnostic EP study and the prescription of an anti-arrhythmic drug,
corrective open heart surgery, the implantation of an implantable cardiovertor
defibrillator ("ICD") or interventional therapy such as radio frequency ("RF")
ablation. The Company estimates that approximately 200,000 EP studies were
performed in 1995 and expects this number to increase in the future as a result
of the growing use of these therapies.

EP studies are typically undertaken in a dedicated electrophysiology
laboratory ("EP Lab") by inducing arrhythmias in patients. The arrhythmia is
generally induced by electrostimulation of the heart through the percutaneous
introduction of catheters into veins leading into the heart. Tilt table testing
is also performed to observe presence or absence of syncope (transient fainting)
when the patient is moved to a natural, upright position. If it is determined
that the patient might benefit from a surgical or other interventional
procedure, the electrical activity in the patient's heart is generally mapped in
an effort to locate the precise area of the heart that is causing the arrhythmia
or tachycardia. EP x-ray imaging positioners, stimulators and recording devices
are used during these procedures, all of which the Company manufactures.

The Company expects the EP market to expand over the next several years
based on the rapid growth of ICD implantation and the development of RF ablation
and new catheter based technologies for the treatment of ventricular tachycardia
and atrial fibrillation. ICDs are typically implanted in patients who have
experienced ventricular tachycardia and are diagnosed to be at risk of
ventricular fibrillation and sudden cardiac death. Due to the increased number
of approved devices and increased indications of use, implantation of ICDs has
grown significantly over the past several years. The Company expects strong
growth in the use of ICDs as a result of recent studies which have indicated
that ICDs may provide a more effective therapy for ventricular fibrillation than
existing drug therapies and based on the development of transvenous leads for
ICDs and smaller device sizes that allow pectoral implantation. The advent of
transvenous leads and pectoral implantation will allow ICDs to be implanted in
outpatient dedicated device implantation suites which can be operated less
expensively than standard operating rooms. The Company believes the growth of
pectoral implantation of ICDs will provide an expanding market opportunity for
such a dedicated device implantation suite which will require x-ray imaging
equipment.

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During the last five years, RF ablation has been increasingly used to treat
atrial arrhythmias such as Wolf-Parkinson-White syndrome. RF ablation involves
locating an electrical abnormality in a chamber of the heart and using
specialized EP catheters to deliver energy from an external source in an amount
sufficient to ablate the abnormal tissue. RF ablation has also been used
successfully to treat certain ventricular tachycardia. Recent research by
electrophysiologists has focused on the use of catheter-based technology used in
an EP interventional procedure to provide a method to permanently cure certain
patients with recurrent atrial fibrillation.

Products

The Company's strategy is to develop and market an integrated, dedicated EP
laboratory system which contains stimulation, recording and x-ray imaging
capabilities for use in diagnostic and therapeutic EP procedures. An integrated
EP system offers the potential of consolidating controls and monitors in order
to speed EP procedures and reduce requirements for ancillary personnel. The
Company's EP products offer specialized features specifically designed for the
electrophysiologist. The Company offers a choice of ceiling and floor mounted
c-arm positioners which incorporate motorized isocentric c-arm movement
(allowing multiple fluoroscopic views of the patient's heart without moving the
patient), a ceiling suspended table capable of vertical patient positioning, and
pulse progressive fluoroscopy capable of reducing x-ray dosage by up to 80%.

Until recently, most EP procedures have been performed in cardiac
catheterization laboratories or performed with mobile fluoroscopic systems. The
Company, with the cooperation of the University of Colorado Health Sciences
Center, developed the first dedicated EP system in 1985, and since that time has
sold approximately 70 dedicated EP systems, primarily to teaching hospitals in
the United States.

EP/X. In 1995, the Company introduced the EP/X system, an economical but
state of the art single plane x-ray imaging system. The EP/X system, meets most
general purpose EP requirements for both community and teaching hospitals. The
EP/X is offered optionally with the Company's patented automatic pulse
progressive fluoroscopy system. The list price of the system ranges from
$300,000 to $380,000. As a result of cost containment pressures, the majority of
the Company's EP system orders have recently included the EP/X system.

EP/X(2). The EP/X(2) is a new, cost-effective, ceiling suspended, bi-plane
fluoroscopy system. The Company believes that bi-plane imaging will be
increasingly required for new, developing EP procedures such as catheter
treatment for ventricular tachycardia or atrial fibrillation. The Company
believes the flexibility of the ceiling suspended system will allow versatile
use of the bi-plane x-ray system whether in a dedicated EP laboratory or in a
surgical suite. The Company anticipates that EP/X(2) will complement its
existing, more expensive, bi-plane Cardiac CX/Pegasus imaging system. The
EP/X(2) expected to carry a list price of $800,000, or 20% below the lowest
priced competitive systems currently available. The Company has submitted a
510(k) application for the EP/X(2), which is currently pending with the FDA.

EP Stimulators. The Company currently markets the DTU-215 EP Stimulator, a
four-channel stimulator for use in EP labs. In 1996, the Company plans to
introduce the EP/Stim, a computer controlled stimulator that allows direct
communication with the Company's EPACE product described below. The DTU-215 EP
Stimulator lists for $22,000. The Company anticipates submitting a 510(k)
application for the EP/Stim in 1996.

EPIC. EPIC is a computerized image management system used to integrate and
display x-ray images and ECG signals during an EP procedure. The EPIC can handle
both bi-plane and single plane images and provides the ability to display three
ECG signals from the EPACE recording system on the x-ray imaging system in both
the control room and the procedure room.

EPACE. The EPACE product is a computer-based 32 channel recording system.
It is also the foundation for the Company's integrated EP Lab, in which EPACE is
linked by a computer interface to the EPIC imaging computer and the newly
developed EP/Stim computer controlled stimulator.

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Competitors in the EP market such as GE Medical Systems, Philips
Electronics, Siemens and Toshiba provide single-plane systems for the EP Lab
that are similar to cardiac catheterization laboratories at prices ranging from
$500,000 to $600,000. The Company's dedicated EP systems are designed
specifically for the requirements of the electrophysiologist and are offered at
prices under $400,000 for the EP/X single-plane system. As a result, the Company
is able to compete on both price and product features.

ENDOVASCULAR AND INTERVENTIONAL MARKETS

Market Overview

The most common form of cardiovascular disease is atherosclerosis, a
disease characterized by the thickening of the arteries caused by deposits of
"plaque," a fatty substance. Atherosclerosis affects both coronary and
peripheral arteries. Open surgical procedures have traditionally been performed
in the operating room by vascular surgeons to repair arteries that impair the
normal flow of blood. Some of the most frequent procedures involve the carotid,
iliac, femoral and popliteal arteries. In addition, vascular surgeons repair
aneurysms (balloon like enlargements of an artery) which, if left untreated, may
rupture and frequently cause death.

Emerging Treatments for Vascular Disease

During the last decade, percutaneous catheter techniques have been
developed to treat a significant number of vascular disorders. Percutaneous
catheter-based procedures guided by high performance x-ray imaging are
significantly less-invasive and less costly than open surgical procedures. These
procedures were initially developed by cardiologists and radiologists and
performed in cardiac catheterization or angiographic laboratories in the
cardiology or radiology departments.

Angioplasty, one of the most frequently performed procedures, involves
x-ray imaging guidance of a catheter introduced into a blood vessel. The
catheter is guided to the vascular narrowing and a balloon is inflated to reopen
the artery to normal flow. While peripheral angioplasty has been quite
successful, a significant portion of treated vessels reocclude over time. More
recent developments include the implantation of a stent delivered to the
narrowing on a catheter. Recent studies have shown stents to keep the artery
open for a longer duration. In addition, catheter based techniques to remove
plaque have demonstrated success and frequently are performed in conjunction
with stent deployment.

More recently, vascular surgeons are purchasing x-ray imaging systems for
installation in the operating room, and vascular surgeons are becoming trained
in the performance of these newer, less-invasive vascular (non-coronary)
procedures. Historically, mobile c-arm intensifiers have provided x-ray imaging
capability for vascular surgeons. However, more complex procedures, such as
carotid stenting and abdominal aortic aneurysm ("AAA") repair using stent
grafts, require more sophisticated x-ray imaging capability in the operating
room.

AAAs are difficult to treat vascular enlargements which, if left untreated,
become increasingly susceptible to rupture, usually resulting in death. Several
companies have developed stent grafts which are deployed across the aneurysm
following percutaneous catheter introduction. The x-ray imaging requirements for
percutaneous AAA repair are demanding and typically cannot be met by the
capabilities of mobile c-arm intensifier systems. There are currently no FDA
approved stent grafts for treating AAA; however, clinical trials are underway in
several centers. The Company believes that stent grafts will eventually provide
a less-invasive method of treating the 190,000 AAAs diagnosed yearly in the
United States. Currently, over 45,000 patients undergo open surgery annually in
large part due to the high mortality and morbidity associated with the
procedure.

In addition, the use of laparoscopic cholecystectomy (minimally-invasive
gall bladder removal) procedures has grown dramatically over the last five
years. These procedures normally require the use of x-ray systems in the
operating room to perform intraoperative cholangiograms (x-ray studies of the
gallbladder). The Company believes that continued growth in the use of
laparoscopic and other minimally-invasive procedures will increase the demand
for dedicated x-ray systems in the operating room.

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It is believed vascular surgeons would prefer to perform catheter directed
techniques such as peripheral angioplasty and stent placements in the operating
room using angiographic x-ray imaging systems with similar angiographic
capabilities as found in dedicated x-ray laboratories. It is also believed that
vascular surgeons would prefer to perform new evolving and high risk procedures
such as AAA repairs and carotid and iliac stenting in the operating room where
open surgery would be immediately available if necessary.

Products

2000 Series. The 2000 Series includes dedicated specialized x-ray imaging
systems designed for installation in an operating room. These systems include a
ceiling suspended isocentric c-arm x-ray imaging system with state of the art
angiographic and digital image management capabilities. These systems include a
surgical table with motorized control for rotation, tilting and elevation. An
unobstructed 80 inch cantilevered carbon fiber table top supports the patient
and permits full body x-ray imaging of patients. The surgical table provides
full capability for the performance of open surgical procedures, including open
heart operations.

The 2000 Series includes variable frame rate progressive fluoroscopy for
x-ray dose reduction of up to 80% with no loss in image quality. The Company
believes this feature is very important because the 2000 Series systems are
frequently used by many non-radiology trained specialists to perform procedures
such as catheter placements, pacemaker implantation and general orthopedics.

The Company is not aware of any other company making dedicated x-ray
imaging systems for surgery with similar features to the 2000 Series systems. A
number of manufacturers provide less expensive mobile c-arm intensifier systems
to meet x-ray imaging requirements in surgery. However, the 2000 Series systems
incorporate improved image quality, ease and speed of positioning, x-ray dose
reduction and on-line angiographic image processing, thus providing unique
advantages over a mobile c-arm. The Company believes that these product features
are important to surgeons who perform endovascular procedures in the operating
room. Since 1991, the Company's 2000 Series systems have been distributed by
International Surgical Systems ("ISS") under an OEM agreement. ISS's list price
for the 2000 Series products is approximately $475,000. See "Business -- OEM
Agreements -- ISS."

Imager III/DPS-100. The Company's Imager III system is a universal x-ray
imaging system designed for a wide variety of interventional radiology
procedures. These systems incorporate digital image processing computers, which
allow a reduction in x-ray dose and improvement in image quality, and
sophisticated positioning control of the patient and x-ray source, which allow
the physician to efficiently achieve all angulations necessary to perform a
procedure. The DPS-100 is a low-cost computer system used as a digital imaging
device with the Imager III and in general purpose fluoroscopy. The DPS-100
provides a cost-effective solution for the incorporation of digital imaging
capabilities. The list prices of the Imager III systems range from $500,000 to
$800,000 depending on the components included.

OEM AGREEMENTS

In 1995, sales under OEM contracts constituted approximately 40% of the
Company's total revenues. The Company has entered into development and
manufacturing contracts with several leading medical equipment manufacturers.
These contracts provide the Company with opportunities to share in the
development and use of new technologies, to receive third party funding of new
product development costs, to increase manufacturing volumes for components and
subsystems used in other products and, in most cases, to maintain an ownership
interest in product designs.

GE Medical Systems. GE Medical Systems, the holder of 19% interest in the
Company, is currently the Company's largest OEM customer, accounting for
approximately 10.3% of its revenues in 1995. Under its OEM contract, GE Medical
Systems is required to purchase certain minimum annual quantities of Tilt-C
positioners. The Tilt-C positioner is a multi-purpose 90 degree tilting table
with a cantilevered table top and sophisticated positioner controls. These
multi-purpose systems are used in interventional procedures such as biopsies, as
well as general imaging studies. The Company may also independently sell systems
incorporating its Imager III version of the Tilt-C system sold to GE Medical
Systems under this OEM contract. This agreement expires in December 1997.

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Varian. The Company provides a line of x-ray generators and imaging systems
to Varian for incorporation into Varian's Ximatron radiotherapy simulator
system. The Company has provided Varian with imaging systems since 1983 and is
currently working under a multi-year contract with Varian. This agreement
expires in October 1998.

Storz. In 1988, the Company entered into a ten-year agreement with Storz
under which the Company has designed and manufactures the c-arm x-ray imaging
system used with Storz Medical's Modulith SLX lithotripter (a non-invasive
system for breaking kidney stones). The Modulith SLX is sold worldwide although
it has been sold in the United States only since FDA clearance was received in
March 1995.

Picker. The Company supplies Picker with a complete line of general
radiology systems. Picker markets a complete radiographic and fluoroscopic
system which includes the Company's x-ray generator, table and tube stand. This
agreement expires in February 1997.

Dornier. The Company also supplies Dornier, with x-ray imaging systems for
sale with Dornier's lithotripter systems. Dornier received FDA clearance to sell
their newest lithotripter (incorporating the Company's components) in the United
States in May 1995. This agreement expires in December 2001.

ISS. The Company sells its 2000 Series specialty x-ray imaging system to
ISS under an OEM agreement. Under this agreement, ISS is responsible for sales
and marketing of these systems into the surgical market, while the Company is
responsible for installation, applications training and service for 2000 Series
systems sold by ISS. ISS currently has five direct sales people selling the 2000
Series in the United States and joint marketing plans with the Company in
Western Europe and South America. This agreement expires in December 1998.

GENERAL RADIOLOGY PRODUCTS

In addition to the breast cancer and electrophysiology and OEM products
described above, the Company also sells other diagnostic x-ray imaging systems
and other products used for general x-ray procedures. These systems are sold
domestically and internationally through direct and dealer distribution channels
for use in hospitals, clinics and physician's offices for general radiographic
and fluoroscopic screening.

TRAUMEX. The Company's TRAUMEX x-ray imaging system provides unique
positioning capabilities requiring minimal patient movement making it well
suited for emergency room applications, while it also serves as a versatile
general radiographic system for hospitals. During 1995, the Company began
shipping an upgraded version of the TRAUMEX including new features and certain
improvements in reliability. The list price of the Company's TRAUMEX system
ranges from $140,000 to $200,000.

Digital X. The Company also manufactures and sells Digital X and other
general radiographic systems to hospitals and clinics. The Digital X
radiographic product line includes x-ray imaging products for physicians'
offices and clinics, which generally sell for approximately $35,000, and systems
for hospitals which generally sell in the range of $80,000 to $120,000.

90 Series. The Company's 90 Series systems are composed of radiographic and
fluoroscopic tables used in conjunction with generators and imaging chains and
are sold through direct, dealer and OEM channels. The Company also sells a line
of radiographic and fluoroscopic systems designed for real time x-ray imaging
which are sold to both clinics and hospitals with list prices ranging from
$175,000 to $250,000.

SALES AND MARKETING

In the United States, the Company currently markets its products through
its direct sales force and certain dealers. Direct sales offer the Company
higher margins, more control over the sales process and customer contacts, and
ongoing service revenues. The Company believes that more sophisticated products
such as certain breast cancer, EP and endovascular systems require a focused and
dedicated sales force. As a result, the majority of the Company's sales of
Mammotest and EP systems are made through its direct sales force. The Company
believes that general radiology systems are more appropriately sold by dealers
because such products require broader distribution and more competitive pricing.
Accordingly, the Company markets

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its general radiology systems through its dealer organization. Certain of the
Company's dealers market the Company's entire product line, while others focus
exclusively on the general radiology market. As of March 31, 1996, the Company
had approximately 30 direct sales people whose territories primarily cover large
metropolitan areas and approximately 30 independent dealers which cover the
remainder of the United States.

Historically, the Company has focused its marketing efforts in the United
States. Recently, however, the Company has expanded its international marketing
efforts to support the Company's expansion into the European, Asian and Latin
American markets. In 1984, the Company formed a subsidiary in Australia to
manage its sales there and to manage a network of dealers in Asia. In 1993, the
Company created a European sales subsidiary to manage both dealers and direct
sales personnel in Europe. International sales are also made through a network
of dealers in Latin America and the Middle East. In January 1996, the Company
opened a representative office in Beijing. As of March 31, 1996, the Company had
10 direct sales people and approximately 50 dealers conducting the Company's
international sales efforts.

The Company's key marketing activities include trade shows, professional
journal advertising, telemarketing and the organization and administration of
seminars, conferences and physician training programs. The telemarketing group
develops sales leads and assesses customer satisfaction with the Company's
products and both direct and dealer service performance.

The Company's service organization is responsible for installing the
Company's products and providing warranty service. Company products sold by the
direct sales force carry limited warranties covering parts and labor for periods
ranging from six to twelve months. Company products sold through dealers and to
OEM customers carry limited warranties with terms ranging from six to twelve
months which cover only parts or components supplied by the Company. Service
personnel provide maintenance service under service contracts or at hourly rates
from eight locations in the United States. The Company plans to continue to
expand its direct service organization to complement the planned growth in the
Company's direct sales organization. The Company's direct service organization
services its products in certain foreign countries. In other foreign countries,
the Company services its products through dealers and third parties. As of March
31, 1996, the Company employed 57 field and technical support engineers and 11
administrative and management personnel in its U.S. service organization.

RESEARCH AND DEVELOPMENT

The Company has a number of potential new products in various stages of
development. Currently, the Company's research and development efforts are
focused on the development of SENOSCAN, a full field digital mammography system
employing CCD imaging technology. In addition, the Company is expending
significant research efforts on EP systems, advanced image processing and high
frequency generator design. Research and development expenditures totalled $6.2
million, $5.6 million and $6.7 million in 1993, 1994 and 1995 respectively. A
portion of these research and development expenditures is reimbursed by the
Company's OEM customers.

NCI, through payments made to certain members of the National Digital
Mammography Development Group (a consortium of GE Medical Systems and four
universities), has provided funding for the clinical testing of SENOSCAN. The
Company is also a party to a Cooperative Research and Development Agreement with
the Lawrence Livermore National Laboratory to jointly develop design parameters
for a digital mammography system, and has a research arrangement with the
University of Toronto's Department of Medical Physics to assist in the
evaluation of the Company's digital mammography detector system. See "Breast
Cancer Imaging and Biopsy Market -- Breast Cancer Products Under Development."

The Company believes that its ability to develop technical innovations and
apply them to new products designed for targeted clinical applications has been
and continues to be important to its success. The Company's key areas of
engineering expertise include digital image processing, structural mechanical
design, microprocessor control of servo systems, high voltage x-ray generator
design and high resolution video systems. As of March 31, 1996, the Company
employed 86 engineers and technicians in the research and development function.

34
<PAGE> 37

The Company's products in development require significant investments in
equipment, inventory, manufacturing and marketing by the Company. Lengthy and
expensive clinical trials could also be required prior to submission to the FDA
and FDA clearance or approval. For example, the Company is developing a number
of new products for the breast cancer market that have not yet undergone
clinical trials or received FDA clearance or approval, and are only in the
prototype or earlier stages. There can be no assurance that the Company will be
able to successfully design, manufacture and market these new products, that the
new products will receive FDA clearance or approval, or that these products will
be accepted by the marketplace. Lack of widespread acceptance of these products
could have a material adverse effect on the Company's future revenues and
earnings. See "-- Government Regulation."

MANUFACTURING

The Company's products are manufactured at its manufacturing facilities in
Denver, Colorado and Chicago, Illinois. Production processes at the facilities
include machining, fabrication, printed circuit board assembly and testing,
subassembly, system assembly and final testing. The Company has invested in
various automated and semi-automated equipment for the fabrication and machining
of parts and assemblies incorporated in its products. The Company may from time
to time further invest in such equipment when cost-justified. The Company's
quality assurance program includes various quality control measures from
inspection of raw materials, purchased parts and assemblies through on-line
inspection.

The Company's manufacturing facilities are subject to periodic inspection
by the FDA. In March 1995, the Company was issued a warning letter by the FDA
concerning documentation and other deficiencies in the manufacturing practices
at its Denver facility. The Company rectified these deficiencies and resolved
this matter with the FDA in June 1995. In September 1995, the Company received a
warning letter from the FDA with respect to documentation and other deficiencies
at its Chicago facility. The Company believes it has corrected the deficiencies
discussed in that letter and is in the process of obtaining third-party
certification of these corrections. See "Risk Factors -- Government Regulations;
No Assurance of Regulatory Approval."

The Company's manufacturing processes are, for the most part, vertically
integrated, although selective outsourcing is employed to take advantage of
economies of scale at outside manufacturing facilities and to alleviate
manufacturing bottlenecks. The Company purchases materials and components from
various suppliers that are either standard products or built to Company
specifications. See "Risk Factors -- Manufacturing and Operating Risks." Certain
components used in existing products of the Company, as well as products under
development, are frequently purchased from single sources. The Company believes
that alternative sources for such components can generally be obtained when
necessary, although the need to change suppliers or to alternate between
suppliers might cause material delays in delivery or significantly increase the
Company's costs. See "Risk Factors -- Dependence on Key Suppliers."

COMPETITION

35
<PAGE> 38

systems, at prices substantially below the prices of the Company's products. In
addition, competition could increase if new companies enter the market or if
existing competitors expand their product lines or intensify efforts within
existing product lines. There can be no assurance that the Company's current
products or products under development will be sufficient to enable it to
compete effectively. In addition, the Company competes for acquisition
opportunities, OEM and service contracts and experienced personnel.

The Company's Mammotest system principally competes with Lorad's
prone-positioning breast biopsy system, which Lorad has priced aggressively.
Many larger companies, including GE Medical Systems, Philips and Siemens also
offer stereotactic add-on systems. See "Patents and Proprietary Rights" for a
discussion of the Company's patent infringement litigation against Lorad.

Additionally, U.S. Surgical Corporation ("U.S. Surgical") has recently
introduced a 20 mm diameter tissue removal system. The U.S. Surgical biopsy
system is sold with a stereotactic table manufactured for them on private label
basis by Lorad.

PATENTS AND PROPRIETARY RIGHTS

The Company seeks to protect its proprietary rights through a combination
of technical experience, patent, trade secret and trademark protection and
nondisclosure agreements. The Company's future success will depend in part on
its ability to obtain and enforce patent protection for its products and
processes, preserve its trade secrets and to operate without infringing on the
patent or proprietary rights of others.

While the Company has numerous U.S. and foreign issued patents and pending
patent applications covering various aspects of its products, there can be no
assurance that the Company's patents, and any patents that may be issued in the
future, will provide the Company with significant competitive advantages or
protection of its intellectual property. The Company's issued patents cover,
among other things, certain features of its Mammotest stereotactic breast biopsy
system, and its allowed patents include a patent on certain features of its
SENOSCAN digital mammography system and MR Breast Biopsy system. There can be no
assurance that the Company's patents, and any new patents that may be issued in
the future, will provide the Company with significant protection. Moreover, the
laws of some foreign countries do not protect the Company's proprietary rights
in its products to the same extent as do the laws of the United States. The
Company anticipates that any attempt to enforce its patents would be time
consuming and costly. No assurance can be given that any patents owned or
applied for by the Company will not be challenged, invalidated or circumvented,
or that the rights granted thereunder will provide competitive advantages to the
Company. In addition, since many other companies hold patents in fields in which
the Company operates, the Company could be found to have infringed third-party
patents and could be required to alter its products or processes, pay licensing
fees, which may not be available to the Company on commercially reasonable
terms, if at all, or cease making and selling any infringing products and pay
damages for past infringement.

In addition, the Company relies on trade secrets and proprietary know-how,
which it seeks to protect, in part, through appropriate confidentiality and
proprietary information agreements. These agreements generally provide that all
confidential information developed or made known to the individual by the
Company during the course of the individual's relationship with the Company is
to be kept confidential and not disclosed to third parties, expect in specific
circumstances. The agreements generally provide that all inventions conceived by
the individual in the course of rendering services to the Company shall be the
exclusive property of the Company. There can be no assurance that proprietary
information or confidentiality agreements with employees, consultants and others
will not be breached, that the Company would have adequate remedies for any
breach, or that the Company's trade secrets will not otherwise become known to
or independently developed by competitors.

In April 1992, the Company filed a patent infringement lawsuit against
Lorad in the United States District Court for the District of Colorado. The
Company owns patent No. 5,078,142, covering certain features of its Mammotest
stereotactic breast biopsy system and believes that Lorad has infringed certain
claims of its patent with the introduction of its mammographic biopsy system.
The action seeks to enjoin Lorad and its agents from the manufacture, use and
sale of the allegedly infringing stereotactic breast biopsy system. The Company
is also seeking treble damages and attorneys' fees. The Company intends to seek
the earliest

36
<PAGE> 39

possible trial date for this litigation. It is possible that this suit will not
come to trial until after the resolution of a case currently before the U. S.
Supreme Court, Werner-Jenkinson Company, Inc. v Hilton Davis Chemical Co.
Although the Company is not a party to the Werner-Jenkinson case, certain issues
related to the doctrine of equivalence raised in that case are similar to issues
raised in the Company's suit against Lorad. Therefore, the U. S. District Court
for the District of Colorado may delay the trial date for the Lorad suit until
after the Supreme Court's decision in the Werner-Jenkinson case.

The Company has received notice from the holder of a U.S. patent alleging
infringement by certain of the Company's products and offering the Company a
license to use the patent on terms that were not acceptable to the Company. The
Company believes that only one former product and one current product could
potentially be implicated by the patent. Although the Company has not concluded
its review of the patent, the Company believes that, if required to take a
license to the patent, any license fees payable would not have a material
adverse effect on the Company's financial position.

The Company has technology license agreements with third parties under
which it pays nominal royalties in connection with its sale of products using
the third party's technology. The Company pays royalties under a technology
license as to the TRAUMEX system.

In connection with the Company's sale of Preferred Stock to GE Medical
Systems in June 1995, the Company granted GE Medical Systems a contingent
license to the Company's technology relating to an OEM product. GE Medical
Systems' rights to use this manufacturing license in return for the cancellation
of the preferred stock is contingent upon its continued ownership of all of the
shares of the Preferred Stock, and upon a change in control of the Company. See
"-- Relationship with GE Medical Systems."

GOVERNMENT REGULATION

FDA regulations require manufacturers of medical devices to adhere to
certain "Good Manufacturing Practices" ("GMP"), which include testing, quality
control and documentation procedures. The Company's manufacturing facilities are
subject to periodic inspection by the FDA. In March 1995, the Company was issued
a warning letter by the FDA concerning documentation and other deficiencies at
its Denver facility. The Company rectified these deficiencies and resolved this
matter with the FDA in June 1995. In September 1995, the Company received a
warning letter from the FDA with respect to documentation and other deficiencies
at its Chicago facility. The Company believes it has corrected the deficiencies
discussed in that letter and is in the process of obtaining third-party
certification of these corrections. Although the Company strives to operate
within the guidelines imposed by the FDA, no assurances can be given that the
FDA will not in the future find the Company to be in violation of one or more
such regulations, which violation(s) may adversely impact the operations of the
Company.

37
<PAGE> 40

and possibly a review by a panel of experts outside the FDA. Clinical studies
would need to be conducted in accordance with FDA requirements. Failure to
comply with FDA requirements could result in the FDA's refusal to accept the
data or the imposition of regulatory sanctions. FDA review of a PMA application
can take significantly longer than that for a 510(k) premarket notification and
could take several years to complete. There can be no assurance that the
necessary clearances or approvals for any of the Company's new products,
including SENOSCAN, will be obtained on a timely basis, if at all. Failure to
obtain necessary regulatory approvals, the restriction, suspension or revocation
of existing approvals, if obtained, or any failure to comply with regulatory
requirements could have a material adverse effect on the Company's business,
financial condition and results of operations.

Sales of medical devices outside of the United States are subject to FDA
export and international regulatory requirements that vary from country to
country. The time required to obtain approval for sale internationally may be
longer or shorter than that required for FDA clearance or approval, and the
requirements may differ. There can be no assurance that the Company will obtain
regulatory approvals in such countries or that it will not be required to incur
significant costs in obtaining or maintaining its foreign regulatory approvals.
The Company has recently obtained the certifications necessary to permit the
"CE" mark to be affixed to those products currently being sold in Europe. The CE
mark is an international symbol of quality which will become required for sales
into the member countries of the European Union beginning in mid-1998. While the
Company has obtained approval to sell into the European Union, there can be no
assurance that the Company will be able to obtain other international regulatory
approvals. In addition, significant costs and delays may be encountered.

The Company is also subject to other Federal, state, local and
international laws and regulations related to worker health and safety,
environmental protection and export controls. The Company believes it is in
compliance in all material respects with these other laws and regulations.

GOVERNMENT REIMBURSEMENT

Medicare reimbursement for hospitals represents about 30% of all hospital
revenues. Since 1983, Medicare reimbursement has been based on a fixed amount
for admitting a patient with a specific diagnosis. Hospital profit margins have
been reduced significantly since the introduction of Diagnosis Related Groups
("DRGs"). As DRG reimbursement is a fixed amount based on a specific diagnosis,
hospitals have incentive to use less costly treatment methods. If a new
technology is considered to be more cost effective, hospitals will frequently
make capital expenditures to provide cost savings. Frequently, DRG reimbursement
is reduced to reflect the adoption of a new procedure or technique and, as a
result, hospitals are generally willing to implement new cost saving
technologies before these downward adjustments in DRG rates become effective.

In 1991, the Health Care Financing Administration ("HCFA") published rules
to change the method of capital reimbursement for hospitals. The rules changed
capital reimbursement from a system based on costs to one based on prospective
payment. The rules provide for a ten year transition and permit hospitals with
unusually low or high capital reimbursement methods to be reimbursed fairly. The
Company believes that these capital reimbursement rules impact the expansion of
facilities more heavily than medical equipment purchases.

In early 1992, Medicare also began to phase in over a five year period a
system whereby reimbursements to physicians are based on the lower of their
actual charges or a fee schedule amount based on a "resource-based relative
value scale." This replaced a "charge-based" fee schedule, and generally lowers
the reimbursements received by radiologists and cardiologists from the previous
method.

38
<PAGE> 41

The Company believes that since minimally-invasive surgical techniques are
generally less expensive than open or conventional surgery, its stereotactic
breast biopsy, electrophysiology and endovascular systems provide hospitals the
opportunity to reduce costs and, therefore, that the Company generally benefits
from cost containment programs.

The Company's new products may require reimbursement in excess of levels
currently permitted under Medicare guidelines. See "Risk Factors -- Healthcare
Reform; Uncertainty of Patient Reimbursement."

RELATIONSHIP WITH GE MEDICAL SYSTEMS

In June 1995, the Company completed a private sale of 1,333,333 shares of
its Series D Convertible Preferred Stock ("Preferred Stock") to GE Medical
Systems for $10 million.

The Preferred Stock has no voting rights, except as provided by law. The
Preferred Stock ranks senior to the Company's Common Stock and all other
preferred stock or other equity securities of the Company. The Preferred Stock
is convertible at the option of the holder at any time into an equal number of
shares of Common Stock. The Preferred Stock bears no stated dividend but its
holders are entitled to receive equivalent dividends to any dividends paid on
any other preferred stock or other equity securities of the Company. The
Preferred Stock is not redeemable by the Company. The Preferred Stock has a
liquidation preference of $7.50 per share and is protected by customary
anti-dilution provisions.

In the event certain companies acquire control of the Company, GE Medical
Systems has the right, if it continues to beneficially own all of the originally
outstanding shares of Preferred Stock, to either (i) surrender all of the
Preferred Stock and have the right to use a manufacturing license (the "Tilt C
License") to the Company's Tilt C diagnostic imaging systems, (ii) participate
in any merger of the Company with such companies, or (iii) if under clause (ii)
above it would receive cash and marketable securities of less than $10 million
in value, $10 million in cash. Additionally, if the Company violates certain net
worth or other covenants, GE Medical Systems has the right, if it continues to
beneficially own all of the originally outstanding shares of Preferred Stock, to
surrender the Preferred Stock for the right to use the Tilt C License.

GE Medical Systems also agreed to certain customary standstill provision,
which expire on the earlier of June 20, 2000 or the date upon which GE Medical
Systems beneficially owns less than 5% of the Company's outstanding Common
Stock.

In connection with the foregoing transactions, the Company and GE Medical
Systems entered into a Registration Rights Agreement, dated as of June 20, 1995,
which grants to GE Medical Systems certain demand and piggyback registration
rights with respect to the Common Stock obtainable upon conversion of the
Preferred Stock. GE Medical Systems has declined to participate in this
Offering.

BACKLOG

The Company's backlog generally includes only product orders for which
delivery is requested within the succeeding twelve month period. Although the
Company has multi-year agreements with several OEM customers and occasionally
has other orders with longer than twelve month lead times, such orders are
included in backlog only at the time when the requested delivery date falls
within the twelve month period and specific purchase orders are released and
accepted by the Company.

As of December 31, 1995 and 1994, the Company's backlog was approximately
$26.5 million and $24.0 million, respectively. Backlog as of any particular date
should not be relied upon as being indicative of the Company's net revenues for
any future period.

FACILITIES

The Company maintains leased office and manufacturing facilities in Denver,
Colorado and Chicago, Illinois. The Denver facilities include approximately
125,000 square feet of office and manufacturing space and are leased from a
partnership whose general partners are Morgan W. Nields, the Company's Chief
Executive Officer and Chairman of the Board, and Kinney L. Johnson, a member of
the Company's Board of

39
<PAGE> 42

Directors. The Denver facilities include the Company's headquarters. The
Illinois facilities consist of approximately 150,000 square feet of office and
manufacturing space. The Company's general radiology systems are manufactured at
the Illinois facility. All other products are manufactured in Denver. The
Company also leases office space in Denmark, Germany, Australia and China. The
Company believes its facilities will provide the capacity to accommodate several
years of growth.

PRODUCT LIABILITY

The Company has been a defendant from time to time in product liability
claims. The Company maintains product liability insurance with coverage limits
of $5 million per occurrence per year in the aggregate. During the last five
years, the Company has not paid any significant sums relating to product
liability claims.

LEGAL PROCEEDINGS

The Company is a defendant in various lawsuits incident to the operation of
its business. Management believes that there are no pending legal proceedings
against the Company that would have a material adverse effect on the
consolidated financial position of the Company. See "Patents and Proprietary
Rights" for a discussion of the Company's patent infringement suit against Lorad
Corporation.

EMPLOYEES

As of March 31, 1996, the Company had approximately 560 employees,
including 300 in manufacturing, 83 in engineering, 127 in sales, marketing and
service and 50 in administration. None of the Company's employees are parties to
a collective bargaining agreement. The Company considers relations with its
employees to be good.

SCIENTIFIC ADVISORY BOARDS

The Company maintains a Medical Advisory Board and Electrophysiology
Advisory Board to provide advice to the Company with respect to new developments
in the medical field. The Company seeks the advice of its Medical Advisory Board
members for opinions on the relative importance of new techniques in medicine,
as well as the impact of new and developing procedures on the Company,
particularly in the fields of radiology and cardiology. The Electrophysiology
Advisory Board advises the Company on developments in the field of
electrophysiology. Members of these boards or their institutions may purchase
products from the Company from time to time, and receive no compensation from
the Company other than reimbursement of expenses and nominal honoraria. One of
the Medical Advisory Board Members, David G. Bragg, M.D., is also a director of
the Company.

<TABLE>
<S> <C>
Medical Advisory Board Members Affiliation
David G. Bragg, M.D. ............ Professor and Chairman of Radiology,
University of Utah School of Medicine
Salt Lake City, Utah
William R. Hendee, Ph.D. ........ Senior Associate Dean for Research, Medical College of
Wisconsin
Milwaukee, Wisconsin
Spencer B. King, M.D. ........... Director of Interventional Cardiology, Emory Hospital
Atlanta, Georgia
Wende Logan-Young, M.D. ......... Breast Clinic of Rochester
Rochester, New York
William M. Thompson, M.D. ....... Professor and Chairman of Radiology, University of
Minnesota
Minneapolis, Minnesota
Joseph P. Galichia, M.D. ........ Galichia Cardiovascular Cardiology Group P.A.
Wichita, Kansas
</TABLE>

40
<PAGE> 43

<TABLE>
<S> <C>
EP Advisory Board Members Affiliation
Michael J. Baker, M.D. .......... Penrose Hospital
Colorado Springs, Colorado
David E. Haines, M.D. ........... University of Virginia Health Sciences Center
Charlottesville, Virginia
Warren Jackman, M.D. ............ Director of Clinical Electrophysiology,
University of Oklahoma Health Sciences Center
Oklahoma City, Oklahoma
Richard M. Luceri, M.D. ......... Florida Arrhythmia Consultants
Ft. Lauderdale, Florida
John M. Miller, M.D. ............ Temple University Department of Medicine, Cardiology
Section
Philadelphia, Pennsylvania
Gerald Naccorelli, M.D. ......... Hershey Medical Center, Cardiology Division
Hershey, Pennsylvania
Michael J. Reiter, M.D. ......... University of Colorado, Cardiology Department
Denver, Colorado
John R. Windle, M.D. ............ University of Nebraska Medical Center
Omaha, Nebraska
Carol A. Zaher, M.D. ............ Kaiser Permanente
Los Angeles, California
</TABLE>

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<PAGE> 44

MANAGEMENT

DIRECTORS AND OFFICERS

The Company's directors and executive officers are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------- --- -------------------------------------------------
<S> <C> <C>
Morgan W. Nields..................... 50 Chairman of the Board and Chief Executive Officer
Richard Balla........................ 58 Vice President of Operations-Chicago
Anthony G. DeCarolis................. 49 Vice President of Sales and Marketing
Charles L. Dumas..................... 61 Vice President of Operations
James A. Newcomb..................... 49 Vice President of Finance and Chief Financial
Officer
Mike Tesic........................... 58 Vice President of Engineering
Carla J. Wolin....................... 46 Vice President of Administration and Secretary
David G. Bragg, M.D.................. 62 Director(1)
Thomas J. Cable...................... 56 Director(2)
Kinney L. Johnson.................... 52 Director(1)
Frank W.T. LaHaye.................... 67 Director(2)
Lawrence A. Lehmkuhl................. 58 Director(2)
</TABLE>

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

(1) Member of Audit Committee.

(2) Member of Compensation Committee.

Executive officers are appointed by and serve at the pleasure of the Board of
Directors.

Morgan W. Nields. Mr. Nields has served as Chief Executive Officer and
Chairman of the Board since the Company's incorporation in 1973 and served as
President from August 1990 until December 1992. Mr. Nields is a Director and a
member of the Board of Governors of the National Electrical Manufacturers
Association (NEMA). He holds a BA degree from Williams College and an MBA from
the Amos Tuck School of Business Administration at Dartmouth College.

Richard Balla. Mr. Balla joined the Company in November 1988 as Vice
President, Manufacturing-Chicago, when the Company purchased the Raytheon
Medical Systems Division. In July 1990, he became Vice President-Operations,
Chicago. Mr. Balla holds a BSEE degree from Chicago Technical College.

Anthony G. DeCarolis. Mr. DeCarolis joined the Company in May 1995 as Vice
President of Sales and became Vice President, Sales and Marketing shortly
thereafter. Prior to joining the Company, Mr. DeCarolis served in national sales
management positions for Toshiba America Medical Systems from 1989 to March 1995
and in management positions at General Electric Company from 1985 to 1989. Mr.
DeCarolis holds a BS degree from the University of Pittsburgh.

Charles L. Dumas. Mr. Dumas joined the Company in September 1994 as Vice
President, Operations. Prior to joining the Company, Mr. Dumas served as Vice
President and General Manager of the Relay Products Division of Genicom
Corporation, a data processing and computer peripherals company, from January
1990 to August 1994. Mr. Dumas has also held similar positions with Quotron
Systems, NBI, Inc. and ITT Courier, Inc. from 1980 to 1990. Mr. Dumas holds a
BSEE degree from the University of Alabama and attended graduate school at
Arizona State University.

James A. Newcomb. Mr. Newcomb joined the Company in June 1995 as its Vice
President Finance/Chief Financial Officer. Previously, Mr. Newcomb was Vice
President of Finance, Chief Financial Officer for Neodata Services, Inc., a
direct marketing and fulfillment company, from September 1993 to May 1994, and
Vice President Controller of Teco Energy, Inc., a diversified utility holding
company, from June 1989 to August 1993. From 1985 to 1989, Mr. Newcomb was Vice
President of Finance for the defense electronics business of Allied Signal Inc.
Mr. Newcomb holds a BA degree in Economics from Beloit College in Wisconsin and
an MBA from the Amos Tuck School of Business Administration at Dartmouth
College.

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<PAGE> 45

Mike Tesic. Dr. Tesic joined the Company in November 1993 as Vice
President, Engineering. Prior to his position with the Company, Dr. Tesic served
as Vice President of Engineering and Strategic Development of Lunar Corporation,
a direct marketing and fulfillment company, from January 1992 to November 1993.
Dr. Tesic was also previously Manager of Research and Development for Varian's
Magnetic Resonance Spectroscopy business from July 1986 to January 1992 and,
prior to that, held several management positions with Picker International. Dr.
Tesic holds a Ph.D. degree in physics from Case Western Reserve University.

Carla J. Wolin. Ms. Wolin joined the Company in February 1992 as Director
of Human Resources and Risk Management and in 1994 became the Company's Vice
President, Administration. In June 1995, she assumed the additional
responsibilities of Secretary of the Corporation. From February 1990 to January
1992, Ms. Wolin served as Vice President of Human Resources and Risk Management
of Aerospatiale Helicopter Corporation. Ms. Wolin holds a BS degree in business
from Capital University and attended graduate school at Rockford College.

David G. Bragg, M.D. Dr. Bragg has been a director of the Company since
1985. Dr. Bragg has been Professor and Chairman of the Department of Radiology,
University of Utah School of Medicine since 1970. He is a member of the American
Board of Radiology. He is also a director of the American Investment Bank, N.A.

Thomas J. Cable. Mr. Cable has been a director of the Company since 1984.
Mr. Cable founded and has been general partner of Cable & Howse Ventures, Inc.,
a venture capital firm, since 1977. He is a director of EndoSonics Corporation,
Ostex International Corporation and Mycogen Corporation.

Kinney L. Johnson. Mr. Johnson has been a director of the Company since
1973 and was actively involved with the management of the Company from 1973
through February 1985. Since February 1985, Mr. Johnson has been a principal at
Capital Health Venture Partners, a venture capital firm located in Denver,
Colorado. Mr. Johnson is a director of The Spectranetics Corporation and
Somatogen, Inc.

Frank W.T. LaHaye. Mr. LaHaye has been a director of the Company since
1984. Mr. LaHaye has been a general partner of Peregrine Associates and Miller &
LaHaye, the partnerships that have served as the general partners of Peregrine
Ventures and Peregrine Ventures II Venture Capital Funds, since 1981 and 1984,
respectively. Mr. LaHaye is an unaffiliated outside director or trustee of
twenty-eight mutual funds or trusts of the Franklin/Templeton Group of Funds. He
is chairman and director of Quarterdeck Corporation and a director of Digital
Transmission Systems, Inc.

Lawrence A. Lehmkuhl. Mr. Lehmkuhl has been a director of the Company since
1993, when he was appointed by the remaining directors to fill a vacancy on the
Board of Directors. He retired from St. Jude Medical, Inc., a medical device
manufacturer, where he has held, variously, the positions of Chairman of the
Board, President and Chief Executive Officer. Mr. Lehmkuhl was employed by
American Hospital Supply Corporation from 1966 through the date of his
appointment as President and Chief Executive Officer of St. Jude Medical, Inc.
in February 1985. Mr. Lehmkuhl is also a director of St. Jude Medical, Inc.,
Aequitron Medical, Inc., and Kera Vision, Inc.

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<PAGE> 46

PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of March 31, 1996, and as
adjusted to reflect the sale of shares offered hereby, by (i) each stockholder
known by the Company to be the beneficial owner of more than 5% of the Company's
Common Stock; (ii) each director of the Company; (iii) each executive officer of
the Company; and (iv) each Selling Stockholder.

<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO THE OWNED AFTER THE
OFFERING(1) NUMBER OF SHARES OFFERING(1)
DIRECTORS, OFFICERS AND ----------------------- TO BE SOLD IN --------------------
FIVE PERCENT STOCKHOLDERS NUMBER PERCENT THE OFFERING NUMBER PERCENT
- ------------------------------------ --------- ------- ---------------- --------- -------
<S> <C> <C> <C> <C> <C>
GE Medical Systems, a division of
General Electric Company(2)....... 1,333,333 19.0% -- 1,333,333 16.2%
P.O. Box 414
Milwaukee, Wisconsin 53201
Morgan W. Nields
12300 North Grant St.
Denver, CO 80241
Direct ownership(3)............... 746,677 -- 746,677
Indirect ownership
The Robert L. Nields
Trust(4).......................... 196,442 25,919 170,523
Florence Wesson Nields
Irrevocable Trust(4)......... 144,862 25,919 118,943
Total direct and indirect
ownership...................... 1,087,981 19.0 51,838 1,036,143 15.0
Kinney L. Johnson(5)................ 503,000 8.8 35,000 468,000 6.8
2084 S. Milwaukee
Denver, CO 80210
David G. Bragg, M.D.(6)............. 9,000 * -- 9,000 *
Thomas J. Cable(7).................. 19,064 * -- 19,064 *
Frank W.T. LaHaye(8)................ 159,901 2.8 -- 159,901 2.3
Lawrence A. Lehmkuhl(9)............. 14,000 * -- 14,000 *
Richard F. Balla(10)................ 25,451 * -- 25,451 *
Anthony G. DeCarolis................ 5,000 * -- 5,000 *
Charles L. Dumas(11)................ 500 * -- 500 *
James A. Newcomb.................... 18,000 * -- 18,000 *
Mike Tesic.......................... -- -- -- -- --
Carla J. Wolin(12).................. 2,656 * -- 2,656 *
All directors and executive officers
as a group (12 persons)(13)....... 1,844,553 31.7 86,838 1,757,715 25.0
OTHER SELLING STOCKHOLDERS
Gerald Czajkowski(14)............... 7,068 * 7,018 50 *
Norval Northcott(14)................ 49,126 * 49,126 -- *
Steven Wagner(14)................... 7,068 * 7,018 50 *
</TABLE>

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

* Less than 1%

(1) Unless otherwise noted, each person identified possesses sole voting and
investment power with respect to the shares listed. A beneficial owner is
any person who, directly or indirectly, through any contract, arrangement,
understanding, relationship or otherwise, has or shares voting power or
investment power

44
<PAGE> 47

over the security. Number of shares includes all shares underlying options
that will be exercisable prior to June 1, 1996.

(2) Represents 1,333,333 shares of Series D Convertible Preferred Stock
("Preferred Stock") that are immediately convertible into 1,333,333 shares
of Common Stock at the option of their holder. Until converted, the
Preferred Stock is non-voting, except as required by law.

(3) The amount shown includes 47,500 shares which may be purchased pursuant to
options exercisable by June 1, 1996.

(4) Mr. Nields is a co-trustee and a beneficiary of both trusts and exercises
shared voting and investment power as to such shares.

(5) Includes 15,000 shares which may be purchased pursuant to options
exercisable by June 1, 1996.

(6) Represents 9,000 shares which may be purchased pursuant to options
exercisable by June 1, 1996.

(7) Includes 16,000 shares which may be purchased pursuant to options
exercisable by June 1, 1996.

(8) Mr. LaHaye is a general partner of the general partner of each of Peregrine
Ventures II, L.P. ("PVII") and Peregrine Ventures, L.P. ("PV"). The table
includes 79,145 shares held by PVII and 64,756 shares held by PV. Mr.
LaHaye is a general partner of Miller & LaHaye, the general partner of PVII
and is a general partner of Peregrine Associates, the general partner of
PV. Mr. LaHaye exercises shared voting and investment power with respect to
all of such shares and disclaims beneficial ownership of such shares. The
amount shown includes 16,000 shares which may be purchased pursuant to
options exercisable by June 1, 1996.

(9) Represents 14,000 shares which may be purchased pursuant to options
exercisable by June 1, 1996.

(10) Represents 23,750 shares which may be purchased pursuant to options
exercisable by June 1, 1996.

(11) Represents 500 shares which may be purchased pursuant to options
exercisable by June 1, 1996.

(12) Includes 2,500 shares which may be purchased pursuant to options
exercisable by June 1, 1996.

(13) Includes 144,250 shares which may be purchased pursuant to options
exercisable by June 1, 1996.

(14) Approximately 16% of each of Messrs. Czajkowski's, Northcott's and Wagner's
net proceeds from the sale of their shares will be paid into an escrow
account established in connection with the Company's acquisition of their
minority interests in one of its subsidiaries. The proceeds will ultimately
be paid out to these men, the Company or a combination thereof based on
certain adjustments which may be made in June 1996 to the purchase price of
these interests.

45
<PAGE> 48

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of the Offering, the Company will have outstanding
approximately 6,882,410 shares (7,084,910 shares if the Underwriters'
over-allotment option is exercised in full) of Common Stock assuming no stock
options are exercised. Of these shares, all of the 1,200,000 shares (1,402,500
shares if the Underwriters' over-allotment option is exercised in full) sold by
the Company in this Offering and 3,924,695 shares outstanding prior to this
Offering will be freely transferable by persons other than "affiliates" of the
Company, without restriction under the Securities Act.

The remaining 1,757,715 shares of Common Stock will be "restricted
securities" within the meaning of Rule 144 under the Securities Act and may not
be sold in the absence of registration under the Securities Act unless an
exemption from registration is available, including the exemption contained in
Rule 144. All such restricted securities will be eligible for sale under Rule
144. Certain stockholders and all of the officers and directors of the Company
have agreed not to offer to sell, sell or otherwise dispose such shares, for at
least 90 days after the date of the Purchase Agreement without the prior
written consent of Piper Jaffray Inc. The Company understands that Piper
Jaffray Inc. may, in its discretion, waive these agreements at any time.

In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned his or her shares for at
least two years, including the "affiliate" of the Company (as that term is
defined under the Securities Act), is entitled to sell, within any three-month
period, that number of shares that does not exceed the greater of (i) 1% of the
then outstanding shares of Common Stock of the Company or (ii) the average
weekly trading volume of the then outstanding shares during the four calendar
weeks preceding each such sale. A person (or persons whose shares are
aggregated) who is not deemed an "affiliate" of the Company and who has
beneficially owned shares for at least three years is entitled to sell such
shares under Rule 144 without regard to the volume limitations described above.
Affiliates, including members of the Board of Directors and senior management,
continue to be subject to such limitations.

Additionally, as of March 31, 1996, 921,500 shares of Common Stock have
been reserved for issuance under the Company's employee and director stock
option plans, 174,750 of which were then exercisable and 1,333,333 shares of
Common Stock have been reserved for issuance upon the conversion of an equal
number of shares of Series D Preferred Stock then outstanding.

No predictions can be made as to the effect, if any, that public sales of
shares or the availability of shares for sale will have on the market price
prevailing from time to time. Nevertheless, sales of substantial amounts of the
Common Stock in the public market, or the perception that such sales could
occur, could have an adverse impact on the market price.

46
<PAGE> 49

UNDERWRITING

The Company and the Selling Stockholders have entered into a Purchase
Agreement (the "Purchase Agreement") with the Underwriters listed in the table
below. Subject to the terms and conditions set forth in the Purchase Agreement,
the Company and the Selling Stockholders have agreed to sell 1,200,000 shares
and 150,000 shares of Common Stock, respectively, to the Underwriters, and each
of the Underwriters has severally agreed to purchase, the number of shares of
Common Stock set forth opposite each Underwriter's name in the table below.

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
------------------------------------------------------------------------ ---------
<S> <C>
Piper Jaffray Inc.......................................................
Needham & Company, Inc..................................................

---------
Total.........................................................
==========
</TABLE>

Subject to the terms and conditions of the Purchase Agreement, the
Underwriters have agreed to purchase all of the Common Stock being sold pursuant
to the Purchase Agreement if any is purchased (excluding shares covered by the
over-allotment option granted therein). In the event of a default by an
Underwriter, the Purchase Agreement provides that, in certain circumstances, the
purchase commitment of the nondefaulting Underwriters may be increased or
decreased or the Purchase Agreement may be terminated.

The Underwriters have advised the Company and the Selling Stockholders that
the Underwriters propose to offer the Common Stock directly to the public
initially at the public offering price set forth on the cover page of this
Prospectus and to certain dealers at such price less a concession of not more
that $ per share. Additionally, the Underwriters may allow, and such dealers
may reallow, a concession not in excess of $ per share to certain other
dealers. After the public offering, the public offering price and other selling
terms may be changed by the Underwriters.

In connection with this Offering, the Underwriters may engage in passive
market making transactions in the Common Stock on the Nasdaq National Market
immediately prior to the commencement of sales in this Offering, in accordance
with Rule 10b-6A under the Securities and Exchange Act of 1934, as amended (the
"Exchange Act"). Passive market making consists of displaying bids on the Nasdaq
National Market limited by the bid prices of independent market makers and
purchases limited by such prices. Net purchases by a passive market maker on
each day are limited to a specified percentage of the passive market maker's
average daily trading volume in the Common Stock during a specified prior period
and must be discontinued when such limit is reached. Passive market making may
stabilize the market price of the Common Stock at a level above that which might
otherwise prevail and, if commenced, may be discontinued at any time.

The Company has granted to the Underwriters an option, exercisable by the
Underwriters within 30 days from the date of this Prospectus, to purchase up to
an additional 202,500 shares of Common Stock at the same price per share to be
paid by the Underwriters for the other shares offered hereby. If the
Underwriters purchase any of such additional shares pursuant to this option,
each Underwriter will be committed to purchase such additional shares in
approximately the same proportion as set forth in the table above. The
Underwriters may exercise the option only for the purpose of covering
over-allotments, if any, made in connection with the distribution of the Common
Stock offered hereby.

47
<PAGE> 50

The Company, its officers and directors, the Selling Stockholders and
certain other stockholders of the Company have agreed that they will not sell,
issue, distribute or otherwise dispose of a total of 1,757,715 shares of Common
Stock for a period of 90 days after commencement of this Offering without the
prior written consent of the Piper Jaffray Inc.

The Company and the Selling Stockholders have agreed to indemnify the
Underwriters and their controlling persons against certain liabilities,
including liabilities under the Securities Act, or to contribute to payments the
Underwriters may be required to make in respect thereof.

LEGAL MATTERS

The validity of the Common Stock being offered hereby will be passed upon
for the Company by Davis, Graham & Stubbs LLP, Denver, Colorado. Certain legal
matters will be passed upon for the Underwriters by Wilson Sonsini Goodrich &
Rosati, Professional Corporation, Palo Alto, California.

EXPERTS

The Financial Statements of the Company at December 31, 1995, and 1994, and
for each of the three years in the period ended December 31, 1995, appearing in
this Prospectus and the Registration Statement to the extent and for the periods
indicated in their reports have been audited by Arthur Andersen LLP, independent
public accountants, as set forth in their reports thereon appearing elsewhere
herein and in the Registration Statement, and are included herein in reliance
upon such reports given upon the authority of said firm as experts in accounting
and auditing in given said reports.

AVAILABLE INFORMATION

The Company has filed with the Commission in Washington, D.C., a
Registration Statement on Form S-2 under the Securities Act with respect to the
shares of Common Stock offered by this Prospectus. This Prospectus does not
contain all the information set forth in the Registration Statement, certain
portions of which are omitted as permitted by the rules and regulations of the
Commission. For further information with respect to the Company and the shares
offered by this Prospectus, reference is made to the Registration Statement,
including the exhibits and schedules filed therewith. Statements contained in
this Prospectus regarding the contents of any contract or any other document
referred to herein or therein 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 or such other document, each such statement being
qualified in all respects by such reference. Copies of the Registration
Statement, of which this Prospectus is a part, together with such exhibits and
schedules may be obtained, upon payment of the fee prescribed by the Commission,
or may be examined without charge, at the office of the Commission.

The Company is subject to the reporting requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files annual and quarterly reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information may be inspected and copies of such materials may be obtained from
the Public Reference Section of the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549 and at the following regional
offices of the Commission: Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511; and Room 1400, 7 World Trade Center, 13th Floor,
New York, New York 10048, upon payment of the charges prescribed therefor by the
Commission.

48
<PAGE> 51

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1995 is incorporated herein by reference. All other reports filed by the
Company pursuant to Sections 13(a) or 15(d) of the Exchange Act since the end of
the fiscal year covered by the above-referenced Annual Report and prior to the
date of this Prospectus are incorporated by reference in this Prospectus. Any
statement contained in a document incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein modifies or supersedes such statement.
Any statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus. The Company
will provide without charge to each person to whom this Prospectus is delivered,
upon the written or oral request of such person, a copy of any or all of the
documents incorporated by reference in this Prospectus (except for certain
exhibits to such documents). Written requests for such copies should be directed
to Secretary, Fischer Imaging Corporation, 12300 North Grant Street, Denver,
Colorado 80241; telephone number (303) 452-6800.

49
<PAGE> 52

FISCHER IMAGING CORPORATION

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.............................................. F-2
Consolidated Balance Sheets As of December 31, 1994 and 1995, and March 31, 1996...... F-3
Consolidated Statements of Operations For the Years Ended December 31, 1993, 1994 and
1995, and for the Three Months Ended April 2, 1995 and March 31, 1996............... F-4
Consolidated Statements of Stockholders' Investment For the Years Ended December 31,
1993, 1994 and 1995, and for the Three Months Ended March 31, 1996.................. F-5
Consolidated Statements of Cash Flows For the Years Ended December 31, 1993, 1994 and
1995, and for the Three Months Ended April 2, 1995 and March 31, 1996............... F-6
Notes to Consolidated Financial Statements............................................ F-7
Schedule II -- Valuation and Qualifying Accounts...................................... F-21
</TABLE>

F-1
<PAGE> 53

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Stockholders and Board of Directors of
Fischer Imaging Corporation:

We have audited the accompanying consolidated balance sheets of FISCHER
IMAGING CORPORATION (a Delaware corporation) and subsidiaries as of December 31,
1995 and 1994, and the related consolidated statements of operations,
stockholders' investment and cash flows for each of the three years in the
period ended December 31, 1995. These financial statements and the schedule
referred to below are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule 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 financial position of Fischer Imaging Corporation
and subsidiaries as of December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.

Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index of the
financial statements is presented for purposes of complying with the Securities
and Exchange Commission's rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing procedures applied
in the audit of the basic financial statements and, in our opinion, fairly
states in all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a whole.

/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP

Denver, Colorado,
February 1, 1996.

F-2
<PAGE> 54

FISCHER IMAGING CORPORATION

CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS EXCEPT SHARE DATA)

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31,
------------------- MARCH 31,
1994 1995 1996
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................. $ 508 $ 968 $ 580
Trade accounts receivable, net of allowance for doubtful
accounts of approximately $449 and $896 at December 31,
1994 and 1995, and $421 at March 31, 1996,
respectively........................................... 14,466 19,957 19,190
Inventories............................................... 17,707 20,790 22,745
Other current assets...................................... 2,005 3,202 3,370
------- ------- ---------
Total current assets.............................. 34,686 44,917 45,885
------- ------- ---------
PROPERTY AND EQUIPMENT (at cost):
Manufacturing equipment................................... 7,188 7,591 7,798
Office equipment and leasehold improvements............... 5,294 4,789 4,598
------- ------- ---------
12,482 12,380 12,396
Less -- Accumulated depreciation and amortization......... 7,815 8,288 8,236
------- ------- ---------
Property and equipment, net....................... 4,667 4,092 4,160
------- ------- ---------
INTANGIBLE ASSETS, net (Note 3)............................. 5,610 4,798 4,833
DEFERRED COSTS AND OTHER ASSETS............................. 1,926 1,843 2,019
------- ------- ---------
7,536 6,641 6,852
------- ------- ---------
Total assets...................................... $46,889 $55,650 $56,897
======= ======= =========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Disbursements in transit.................................. $ 1,378 $ 1,088 $ 725
Notes payable and current maturities of long-term debt
(Note 5)............................................... 7,580 4,344 5,689
Trade accounts payable.................................... 5,771 8,352 7,658
Accrued salaries and wages................................ 2,004 2,192 2,247
Other current liabilities................................. 5,896 4,973 4,398
------- ------- ---------
Total current liabilities......................... 22,629 20,949 20,717
LONG-TERM DEBT (Note 5)..................................... 1,861 378 181
OTHER NONCURRENT LIABILITIES................................ 756 739 391
------- ------- ---------
Total liabilities................................. 25,246 22,066 21,289
------- ------- ---------
COMMITMENTS AND CONTINGENCIES (Note 11)
STOCKHOLDERS' INVESTMENT:
Common Stock, $.01 par value, 25,000,000 shares
authorized, 5,515,664, 5,550,691 and 5,682,410 shares
issued and outstanding at December 31, 1994 and 1995
and March 31, 1996, respectively....................... 55 56 57
Series C Junior Participating Preferred Stock, $.01 par
value, 500,000 shares authorized, no shares issued and
outstanding............................................ -- -- --
Series D Convertible Preferred Stock, $.01 par value,
1,333,333 shares authorized, issued and outstanding;
liquidation preference of $10,000,000 (Note 7)......... -- 13 13
Additional paid-in capital................................ 25,008 34,679 35,600
Accumulated (deficit) earnings............................ (3,304) (1,027) 46
Cumulative translation adjustment......................... (116) (137) (108)
------- ------- ---------
Total stockholders' investment.................... 21,643 33,584 35,608
------- ------- ---------
Total liabilities and stockholders' investment.... $46,889 $55,650 $56,897
======= ======= =========
</TABLE>

The accompanying notes are an integral part of these balance sheets.

F-3
<PAGE> 55

FISCHER IMAGING CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER THREE MONTHS ENDED
31, ----------------------
------------------------------- APRIL 2, MARCH 31,
1993 1994 1995 1995 1996
------- ------- ------- -------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET REVENUES............................. $73,332 $68,473 $76,750 $ 16,625 $20,073
COST OF SALES............................ 43,741 44,526 46,905 10,695 11,588
------- ------- ------- -------- ---------
Gross profit................... 29,591 23,947 29,845 5,930 8,485
------- ------- ------- -------- ---------
OPERATING EXPENSES:
Research and development............... 6,176 5,595 6,690 1,665 1,464
Selling, marketing and service......... 16,641 15,573 15,461 3,299 4,358
General and administrative............. 5,321 4,697 4,800 1,141 1,131
Restructuring provisions (Note 6)...... 796 2,419 -- -- --
------- ------- ------- -------- ---------
Total operating expenses....... 28,934 28,284 26,951 6,105 6,953
------- ------- ------- -------- ---------
EARNINGS (LOSS) FROM OPERATIONS.......... 657 (4,337) 2,894 (175) 1,532
Interest expense....................... (933) (1,247) (678) (255) (220)
Other income (expense), net............ 77 (56) 61 (39) 111
------- ------- ------- -------- ---------
EARNINGS (LOSS) BEFORE INCOME TAXES...... (199) (5,640) 2,277 (469) 1,423
Provision (benefit) for income taxes... (199) -- -- -- 350
------- ------- ------- -------- ---------
NET EARNINGS (LOSS)...................... $ -- $(5,640) $ 2,277 $ (469) $ 1,073
======= ======= ======= ======= =======
NET EARNINGS (LOSS) PER COMMON AND COMMON
EQUIVALENT SHARE....................... $ -- $ (1.02) $ .36 $ (.08) $ .15
======= ======= ======= ======= =======
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING.......... 5,495 5,526 6,331 5,548 7,211
======= ======= ======= ======= =======
</TABLE>

The accompanying notes are an integral part of these statements.

F-4
<PAGE> 56

FISCHER IMAGING CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT
(AMOUNTS IN THOUSANDS EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
SERIES C
JUNIOR SERIES D
COMMON STOCK PARTICIPATING CONVERTIBLE ADDITIONAL ACCUMULATED CUMULATIVE
----------------- PREFERRED PREFERRED PAID-IN EARNINGS TRANSLATION
SHARES AMOUNT STOCK STOCK CAPITAL (DEFICIT) ADJUSTMENT TOTAL
-------- ------ ------------- ----------- ---------- ----------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1992..... 5,438,601 $ 54 $-- $-- $ 24,587 $ 2,336 $ (266) $26,711
Shares purchased under employee
stock purchase plan.......... 29,985 -- -- -- 236 -- -- 236
Exercise of stock options...... 11,153 -- -- -- 30 -- -- 30
Tax benefit from sale of option
shares....................... -- -- -- -- 23 -- -- 23
Cumulative translation
adjustment................... -- -- -- -- -- -- 33 33
Net earnings................... -- -- -- -- -- -- -- --
--------- --- --- --- ------- ------- ----- -------
BALANCE, December 31, 1993..... 5,479,739 54 -- -- 24,876 2,336 (233) 27,033
Shares purchased under employee
stock purchase plan.......... 31,438 1 -- -- 121 -- -- 122
Exercise of stock options...... 4,487 -- -- -- 11 -- -- 11
Cumulative translation
adjustment................... -- -- -- -- -- -- 117 117
Net loss....................... -- -- -- -- -- (5,640) -- (5,640)
--------- --- --- --- ------- ------- ----- -------
BALANCE, December 31, 1994..... 5,515,664 55 -- -- 25,008 (3,304) (116) 21,643
Shares purchased under employee
stock purchase plan.......... 22,027 1 -- -- 102 -- -- 103
Exercise of stock options...... 13,000 -- -- -- 61 -- -- 61
Cumulative translation
adjustment................... -- -- -- -- -- -- (21) (21)
Sale of 1,333,333 shares of
Series D Preferred, net of
related costs................ -- -- -- 13 9,508 -- -- 9,521
Net earnings................... -- -- -- -- -- 2,277 -- 2,277
--------- --- --- --- ------- ------- ----- -------
BALANCE, December 31, 1995..... 5,550,691 56 -- 13 34,679 (1,027) (137) 33,584
Shares purchased under employee
stock purchase plan.......... 24,522 -- -- -- 115 -- -- 115
Exercise of stock options...... 44,035 -- -- -- 255 -- -- 255
Acquisition of minority
interest in subsidiary....... 63,162 1 -- -- 551 -- -- 552
Cumulative translation
adjustment................... -- -- -- -- -- -- 29 29
Net earnings................... -- -- -- -- -- 1,073 -- 1,073
--------- --- --- --- ------- ------- ----- -------
BALANCE, March 31, 1996
(unaudited).................. 5,682,410 $ 57 $-- $13 $ 35,600 $ 46 $ (108) $35,608
========= === === === ======= ======= ===== =======
</TABLE>

The accompanying notes are an integral part of these statements.

F-5
<PAGE> 57

FISCHER IMAGING CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER THREE MONTHS ENDED
31, ----------------------
------------------------------- APRIL 2, MARCH 31,
1993 1994 1995 1995 1996
------- ------- ------- -------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss)................................... $ -- $(5,640) $ 2,277 $ (469) $ 1,073
------- ------- ------- ------ -------
Adjustments to reconcile net earnings (loss) to net
cash provided by (used in) operating activities --
Depreciation and amortization...................... 2,194.. 2,283 2,443 553 572
Provision for minority interests................... 17 (68) 117 7 (36)
Other.............................................. -- 3 165 60 (7)
Net changes in assets and liabilities --
(Increase) decrease in trade accounts
receivable.................................... (487) 7,134 (5,491) 1,325 767
(Increase) decrease in inventories............... (142) 1,424 (3,083) (778) (1,955)
(Increase) decrease in other current assets...... (700) 1,080 (1,197) (476) (168)
Increase in intangible assets.................... -- (522) -- -- --
(Increase) decrease in deferred costs and other
assets........................................ (1,143) 374 83 28 (176)
Increase (decrease) in disbursements in
transit....................................... 1,586 (446) (290) 163 (363)
(Decrease) increase in trade accounts payable.... (2,278) 2 2,581 506 (694)
Increase (decrease) in accrued salaries and
wages......................................... 453 (458) 188 120 55
Increase (decrease) in other current
liabilities................................... 1,346 (449) (923) (644) (575)
(Increase) decrease in other noncurrent
liabilities................................... (598) (712) (134) (25) 19
------- ------- ------- ------ -------
Total adjustments............................. 248 9,645 (5,541) 839 (2,561)
------- ------- ------- ------ -------
Net cash provided by (used in) operating
activities.................................. 248 4,005 (3,264) 370 (1,488)
------- ------- ------- ------ -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.................................. (2,248) (1,773) (1,021) (136) (407)
Proceeds from sale of assets.......................... 52 5 -- -- --
Equity investment..................................... (500) -- -- -- --
------- ------- ------- ------ -------
Net cash used in investing activities......... (2,696) (1,768) (1,021) (136) (407)
------- ------- ------- ------ -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common stock.................... 266 133 164 102 370
Proceeds from sale of preferred stock, net............ -- -- 9,521 -- --
Net borrowings (repayments) under line of credit
agreements......................................... 3,321 (1,025) (3,141) (131) 1,327
Repayments of long-term debt.......................... (1,238) (1,116) (1,778) (247) (219)
Decrease (increase) in cumulative translation
adjustment......................................... 33 117 (21) 243 29
------- ------- ------- ------ -------
Net cash provided by (used in) financing
activities.................................. 2,382 (1,891) 4,745 (33) 1,507
------- ------- ------- ------ -------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS.... (66) 346 460 201 (388)
CASH AND CASH EQUIVALENTS, beginning of period.......... 228 162 508 508 968
------- ------- ------- ------ -------
CASH AND CASH EQUIVALENTS, end of period................ $ 162 $ 508 $ 968 $ 709 $ 580
======= ======= ======= ====== =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest.............. $ 897 $ 1,071 $ 785 $ 346 $ 326
======= ======= ======= ====== =======
Cash paid during the period for income taxes.......... $ 370 $ 775 $ 242 $ -- $ 325
======= ======= ======= ====== =======
Equipment acquisitions through capital lease
financing.......................................... $ 23 $ 723 $ 200 $ -- $ 40
======= ======= ======= ====== =======
Noncash acquisition of minority interest in
subsidiary......................................... $ -- $ -- $ -- $ -- $ 552
======= ======= ======= ====== =======
Tax benefits from disqualifying disposition of common
stock issued to employees from exercise of stock
options (recorded as increase to paid-in
capital)........................................... $ 23 $ -- $ -- $ -- $ --
======= ======= ======= ====== =======
</TABLE>

The accompanying notes are an integral part of these statements.

F-6
<PAGE> 58

FISCHER IMAGING CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1996 AND FOR THE THREE MONTHS
ENDED APRIL 2, 1995 AND MARCH 31, 1996 IS UNAUDITED)

(1) BUSINESS ORGANIZATION

Fischer Imaging Corporation (the "Company") and its wholly owned
subsidiaries, Fischer Imaging Midwest, Inc. ("FIMW", a domestic marketing
subsidiary) and Fischer Imaging Australia Pty. Limited ("FIA", a foreign
marketing subsidiary); 90% owned Fischer Imaging Europe A/S ("FIE", a Danish
marketing subsidiary); designs, manufactures, and markets specialty and general
purpose x-ray imaging systems for the diagnosis and treatment of disease. The
Company's principal product lines are directed toward medical specialties in
which minimally invasive techniques are replacing open surgical procedures. The
Company's existing products are principally marketed to the healthcare industry.

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

All significant intercompany transactions have been eliminated in
consolidation.

Use of Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions. Such estimates and assumptions affect the reported amounts of
assets and liabilities as well as disclosure of contingent assets and
liabilities at the date of the financial statements, and the reported amounts of
revenue and expenses during the reporting period. Actual results could differ
from those estimates.

Cash and Cash Equivalents

Cash and cash equivalents include investments in highly liquid instruments
with an original maturity of three months or less.

Inventories

Inventories, which include costs of materials, direct labor and
manufacturing overhead, are priced at the lower of cost (using primarily the
last-in, first-out ("LIFO") method of valuation) or market. Writedowns for
excess and obsolete inventories are charged to expense in the period when
conditions giving rise to the writedowns are first recognized.

Inventories consist of the following components (in thousands) :

<TABLE>
<CAPTION>
DECEMBER 31,
------------------- MARCH 31,
1994 1995 1996
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
FIFO cost --
Raw materials..................................... $ 7,447 $12,040 $11,372
Work in process and finished goods................ 11,546 9,952 12,575
LIFO valuation adjustment........................... (1,286) (1,202) (1,202)
------- ------- -------
Total inventory........................... $17,707 $20,790 $22,745
======= ======= =======
</TABLE>

F-7
<PAGE> 59

FISCHER IMAGING CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Other Current Assets

Other current assets consist of the following (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
----------------- MARCH 31,
1994 1995 1996
------ ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Deferred income taxes................................. $1,019 $2,244 $ 2,085
Prepaid expenses and other............................ 986 958 1,285
------- ------- -------
Total other current assets.................. $2,005 $3,202 $ 3,370
======= ======= =======
</TABLE>

Property and Equipment

Significant additions and improvements are capitalized at cost, while
maintenance and repairs which do not improve or extend the life of the
respective assets are charged to operations as incurred.

Manufacturing and office equipment are depreciated on a straight-line
basis, over the estimated useful lives (ranging from three to eight years) of
the respective assets. Leasehold improvements are amortized, on a straight-line
basis, over the lesser of the estimated useful life or the remaining term of the
related lease.

Intangible Assets

Intangible assets, resulting from an acquisition, are stated at cost net of
accumulated amortization and are being amortized using the straight-line method
over their estimated useful lives which range from 10 to 14 years. All other
intangible assets, comprised primarily of licensing agreements, are amortized
over periods ranging from three to seven years.

Software Development Costs

Certain costs to enhance existing application software products or to
develop new software products have been capitalized in accordance with Statement
of Financial Accounting Standards No. 86. These costs, classified as deferred
costs and other assets in the accompanying consolidated balance sheets, are
being amortized on a straight-line basis over an estimated useful life of three
years. Although new enhancements or competitive pressures might reduce in the
near term the anticipated future revenues and estimated economic lives against
which software development carrying costs have been evaluated, management
believes such estimates are reasonable based upon present information.

Other Current Liabilities

Other current liabilities consist of the following (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
----------------- MARCH 31,
1994 1995 1996
------ ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Customer deposits and deferred revenue................ $2,907 $2,132 $ 1,692
Accrued warranty and installation costs............... 2,167 1,140 1,196
Other................................................. 822 1,701 1,510
------ ------ -------
Total other current liabilities............. $5,896 $4,973 $ 4,398
====== ====== =======
</TABLE>

Foreign Operations

The functional currency for the Company's foreign operations is the
applicable local currency. Assets and liabilities of foreign subsidiaries are
translated at the respective year end exchange rates, while the statements

F-8
<PAGE> 60

FISCHER IMAGING CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

of operations are translated at average exchange rates during the year. Exchange
rate fluctuations on translating foreign currency into U.S. dollars result in
unrealized gains or losses referred to as translation adjustments, which are
recorded as a separate component of stockholders' investment.

Revenue Recognition

The Company recognizes revenue when title and risk of ownership passes to
the customer which, as to shipments with FOB destination terms, is when received
by the customer and, for shipments with FOB shipping point terms, upon departure
from the Company's dock.

Concentration of Credit Risk

The Company's revenues generally are concentrated among customers in the
healthcare industry. The Company establishes an allowance for uncollectible
accounts based upon factors surrounding the credit risk of specific customers,
historical trends, and other information. During 1993, 1994, and 1995 and the
three months ended March 31, 1996, the following customers represented greater
than 5% of the Company's revenues:

<TABLE>
<CAPTION>
MARCH 31,
1993 1994 1995 1996
---- ---- ---- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Dornier........................................... -- -- 6.1% 3.6%
GE Medical Systems................................ -- -- 10.3% 18.4%
Picker International.............................. 7.5% 9.6% 7.6% 6.6%
Varian Associates................................. 13.1% 11.5% 9.8% 7.9%
</TABLE>

Sponsored Research and Development

The Company engages in research and development activities for other
companies. This sponsored research and development is recognized as revenue as
the requirements are fulfilled or as certain development milestones are
completed under the terms and conditions of the related research and development
agreements. Costs incurred in connection with these activities are recognized in
cost of sales as incurred.

Net Earnings (Loss) Per Common and Common Equivalent Share

Net earnings (loss) per share is computed based on results of operations
attributable to common stock and the weighted average number of common and
common equivalent shares outstanding during each of the periods. The preferred
shares issued during the second quarter of 1995 (see Note 7) are treated as
common stock equivalents. The Company uses the treasury stock method for
determining the effect of outstanding stock options on earnings per share.

Stock-Based Compensation Plans

The Company accounts for its stock-based compensation plans under
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB No. 25"). Effective in 1995, the Company adopted the disclosure
option of Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123"). SFAS 123 requires that companies which
do not choose to account for stock-based compensation as prescribed by the
statement, shall disclose the pro forma effects on earnings and earnings per
share as if SFAS 123 had been adopted. Additionally, certain other disclosures
are required with respect to stock compensation and the assumptions used to
determine the pro forma effects of SFAS 123.

F-9
<PAGE> 61

FISCHER IMAGING CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Reclassifications

Certain reclassifications have been made in the financial statements of
prior periods to conform to the current period presentation.

(3) INTANGIBLE ASSETS

Intangible assets consist of the following (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
------------------- MARCH 31,
1994 1995 1996
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Goodwill............................................ $ 2,515 $ 2,515 $ 2,736
Covenant not to compete............................. 3,569 3,569 3,569
Licensing agreements and other...................... 1,380 1,060 1,035
------- ------- -------
7,464 7,144 7,340
Less-Accumulated amortization....................... (1,854) (2,346) (2,507)
------- ------- -------
Intangible assets, net.................... $ 5,610 $ 4,798 $ 4,833
======= ======= =======
</TABLE>

(4) INCOME TAXES

The Company utilizes Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" ("SFAS 109"), which dictates accounting and
reporting standards for recording the tax effects of differences between the tax
basis of assets and liabilities and their reported amounts in the financial
statements. Under SFAS 109, deferred taxes and liabilities are recorded using
enacted tax rates expected to apply to taxable income in the years such
temporary differences are expected to reverse.

The provision (benefit) for income taxes includes the following:

<TABLE>
<CAPTION>
1993 1994 1995
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Current --
Federal............................................. $ 923 $(1,511) $ 1,049
State............................................... 508 (178) 176
------- ------- -------
Total current provision (benefit)........... 1,431 (1,689) 1,225
------- ------- -------
Deferred --
Federal............................................. (1,421) 1,511 (1,096)
State............................................... (209) 178 (129)
------- ------- -------
Total deferred provision (benefit).......... (1,630) 1,689 (1,225)
------- ------- -------
Total provision (benefit)................... $ (199) $ -- $ --
======= ======= =======
</TABLE>

F-10
<PAGE> 62

FISCHER IMAGING CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The statutory federal income tax rate was 34% for the years ended December
31, 1993, 1994 and 1995. Reasons for the difference between the income tax
expense reported in the statements of operations and the amount computed by
applying the statutory federal income tax rate to earnings before income taxes
are as follows:

<TABLE>
<CAPTION>
1993 1994 1995
------ ----- -----
<S> <C> <C> <C>
Statutory tax rate..................................... (34.0)% (34.0)% 34.0%
Increase (decrease) due to:
State taxes.......................................... 57.3 (3.2) 5.7
Losses of subsidiaries not consolidated in tax
return............................................ 19.9 5.3 8.7
Other nondeductible expenses......................... 50.9 5.6 15.8
Valuation allowance on net deferred tax assets....... -- 47.2 (64.2)
Benefit of favorable resolution of RAR............... (194.1) -- --
Utilization of net loss carryovers................... -- (20.9) --
------ ----- -----
Effective tax rate..................................... (100.0)% --% --%
====== ===== =====
</TABLE>

Net deferred tax assets and liabilities as of December 31, 1994 and 1995,
along with the changes during the year, are comprised of the following:

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1994 CHANGE 1995
------------ ------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Current --
Warranty reserves............................... $ 571 $ (286) $ 285
Inventory reserves.............................. 1,323 320 1,643
Bad debt reserves............................... 181 227 408
Accrued vacation................................ 298 (36) 262
Other accrued liabilities....................... 452 (307) 145
Other........................................... -- 97 97
Less -- Valuation allowance..................... (1,806) 1,210 (596)
------- ------ ------
Net current deferred tax asset.................... $ 1,019 1,225 $2,244
======= ------ ======
Noncurrent --
Accelerated depreciation for tax................ $ (26) 10 $ (16)
Software capitalization......................... (362) 25 (337)
Amortization of intangibles..................... 266 (169) 97
Tax credits..................................... 950 (399) 551
Deferred service contracts...................... -- 250 250
Other........................................... 167 32 199
Less -- Valuation allowance..................... (995) 251 (744)
------- ------ ------
Net noncurrent deferred tax asset................. $ -- -- $ --
======= ------ ======
Net changes in deferred taxes..................... $1,225
======
</TABLE>

The amounts recorded as net current deferred tax assets as of December 31,
1995 represent the amount of tax benefits of existing net deductible temporary
differences and tax credits. The Company has available research and development
credits for tax purposes of approximately $416,000 and alternative minimum tax
credits of $135,000 expiring at various dates through 2009. Realization is
dependent on generating sufficient taxable income prior to the expiration of the
tax credits. Although realization is not assured, management believes it is more
likely than not that these deferred tax assets, net of the valuation allowance,
will be realized.

F-11
<PAGE> 63

FISCHER IMAGING CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The amount of the deferred tax asset considered realizable, however, could be
reduced in the near term if estimates of future taxable income during the
carryforward period are reduced.

The domestic versus foreign component of the Company's earnings (loss)
before income taxes is as follows:

<TABLE>
<CAPTION>
1993 1994 1995
----- ------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Domestic................................................. $ (83) $(4,829) $2,958
Foreign.................................................. (116) (811) (681)
----- ------- ------
Total.................................................... $(199) $(5,640) $2,277
===== ======= ======
</TABLE>

A reconciliation of the Company's consolidated income (loss) before taxes
for financial statement purposes to estimated consolidated taxable income is as
follows:

<TABLE>
<CAPTION>
1994 1995
------- ------
(IN THOUSANDS)
<S> <C> <C>
Earnings (loss) before income taxes............................. $(5,640) $2,277
Difference between earnings (loss) before income taxes and
taxable income --
State income taxes............................................ (178) (47)
Permanent differences......................................... 318 329
Net changes in temporary differences.......................... 1,473 632
------- ------
Taxable income (loss)........................................... $(4,027) $3,191
======= ======
</TABLE>

(5) NOTES PAYABLE AND LONG-TERM DEBT

Notes payable and long-term debt as of December 31, 1994 and 1995, and
March 31, 1996 consist of the following (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
------------------- MARCH 31,
1994 1995 1996
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Notes payable to bank under revolving line of credit
agreements........................................ $ 5,784 $ 2,643 $ 3,970
Unsecured promissory note payable, interest payable
monthly at 8.5%; due September 30, 1996........... 864 386 260
Noncompetition agreement payable, discounted at 6%,
subject to upward adjustment for inflation; due in
September 1996.................................... 1,637 829 844
Capitalized lease obligations; interest rates
ranging from 3.5% to 17%; monthly principal and
interest payments due in varying amounts through
October 1997; secured by leased equipment......... 1,067 791 724
Other............................................... 89 73 72
------- ------- -------
9,441 4,722 5,870
Less -- Current maturities.......................... (7,580) (4,344) (5,689)
------- ------- -------
Long-term debt...................................... $ 1,861 $ 378 $ 181
======= ======= =======
</TABLE>

F-12
<PAGE> 64

FISCHER IMAGING CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Line of Credit Agreements

The Company has a bank revolving credit agreement which, pursuant to 1994
and 1995 amendments, has a final maturity of February 1, 1997 with interest at
the bank's prime rate plus 1% (9.3% at March 31, 1996). The amendments also
provided for an annual facility fee equivalent to 1% of the maximum loan limit.
Maximum borrowing is $15.0 million, subject to further restriction based upon
eligible receivables, inventory and Company liquidation value, as determined by
the bank. At March 31, 1996, maximum borrowing availability was approximately
$15.0 million, with approximately $11.0 million not used.

Borrowings under this agreement were approximately $5,784,000, $2,643,000
and $3,970,000 at December 31, 1994 and 1995 and March 31, 1996, respectively,
and are secured by inventory, accounts receivable and fixed assets of the
Company.

The following is a summary of certain terms and balances for the total of
these line of credit agreements for the years ended 1993, 1994 and 1995:

<TABLE>
<CAPTION>
1993 1994 1995
------ ------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at end of period............................ $6,809 $ 5,784 $2,643
Weighted average interest rate at end of period..... 6.1% 9.5% 9.5%
Maximum amount outstanding during the period........ $8,842 $10,947 $7,636
Average amount outstanding during the period(i)..... $6,245 $ 8,409 $3,409
Weighted average interest rate during the
period(ii)........................................ 6.1% 8.1% 9.8%
</TABLE>

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

(i) The average amount outstanding during each year is a 13 month average,
utilizing balances as of the beginning of the year and the 12 subsequent
month ends.

(ii) The weighted average interest rate during the period was computed by
calculating a 13 month average interest rate for each line of credit
arrangement, utilizing rates as of the end of the previous year and the 12
subsequent month ends, multiplying this rate by the average borrowings
under the respective lines of credit, and dividing the resulting sum by the
average amount outstanding under all lines of credit.

Five-year maturities of notes payable and long-term debt are as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, (IN THOUSANDS)
---------------------------------------------
<S> <C>
1996....................................... $4,344
1997....................................... 246
1998....................................... 69
1999....................................... 37
2000....................................... 26
------
Total.............................. $4,722
======
</TABLE>

(6) RESTRUCTURING PROVISIONS

During 1993, the Company recorded approximately $796,000 for costs relating
to corporate-wide restructuring and cost reduction programs, including the
relocation of the Bloom subsidiary to Denver, Colorado, and the realignment of
the Company's service operations.

During 1994, the Company recorded approximately $2,419,000 for
restructuring expenses. The provision included costs related to the writedown of
inventory for discontinued products, severance costs and a customer enhancement
program.

F-13
<PAGE> 65

FISCHER IMAGING CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(7) PREFERRED STOCK

The Company is authorized to issue 5,000,000 shares of $.01 par value
preferred stock, which shares may be issued in one or more series and with such
powers, preferences and rights as the Company's Board of Directors may
determine. During the second quarter of 1995, the Company issued 1,333,333
shares of Series D Convertible Preferred Stock to GE Medical Systems ("GEMS")
for $10 million. The preferred stock is non-voting and not redeemable, bears no
stated dividend, has a $7.50 per share preference upon liquidation and is
convertible into common stock on a one-for-one basis (subject to customary
anti-dilution protection) at the option of the holder. The terms of the
investment restrict GEMS to 25% ownership of Fischer and, under certain change
of control conditions, permit GEMS to exchange its preferred stock for rights to
independently manufacture Tilt-C systems.

(8) EMPLOYEE BENEFIT PLANS

1991 Stock Option Plan

In June 1991, the Company adopted the 1991 Stock Option Plan ("1991 Plan")
which authorized the granting of incentive and nonqualified stock options to
acquire up to 300,000 shares (increased to 500,000 in April 1993) of the
Company's common stock by employees and consultants of the Company. Exercise
terms for the options granted are determined by the Board of Directors at the
time the options are granted. Incentive stock options may be granted at an
exercise price not less than the fair market value on the date of grant with a
maximum option term of 10 years. The 1991 Plan also permits the granting of
stock appreciation rights. The fair value of each option grant is estimated, for
disclosure purposes, on the date of grant using the Black-Scholes option-pricing
model with the following weighted-average assumptions used for grants in 1995:
no dividend yield; expected volatility of 74%; risk free interest rates of
5.97%; and expected life of 5.7 years.

F-14
<PAGE> 66

FISCHER IMAGING CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

A summary of the status of the Company's 1991 stock option plan as of
December 31, 1993, 1994, and 1995 and the three months ended March 31, 1996 and
the changes during those periods is as follows:

<TABLE>
<CAPTION>
FOR THE
FOR THE YEAR ENDED DECEMBER 31, THREE MONTHS
-------------------------------------------- ENDED MARCH
1993 1994 1995 31,
------------ ------------ ------------ 1996
------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Outstanding at January 1...... 288,725 330,700 396,225 895,625
Granted..................... 159,500 142,500 624,000 --
Exercised................... -- -- (7,000) (37,625)
Canceled.................... (117,525) (76,975) (117,600) (6,500)
------------ ------------ ------------ ------------
Outstanding at end of
period...................... 330,700 396,225 895,625 851,500
============ ============ ============ ============
Exercisable at end of
period...................... 73,875 122,588 143,375 104,750
============ ============ ============ ============
Weighted average fair value of
options granted during
period...................... N/A N/A $ 5.18 $ --
============ ============ ============ ============
Range of exercise prices...... $5.50-$11.00 $3.88-$11.00 $4.00-$11.00 $4.00-$11.00
============ ============ ============ ============
Weighted average exercise
price at end of period...... $ 7.30 $ 6.27 $ 8.34 $ 8.44
============ ============ ============ ============
Weighted average exercise
period at end of period..... 9.1 years 8.8 years 9.3 years 8.4 years
============ ============ ============ ============
</TABLE>

In December 1995, the Company's Board of Directors granted 430,000 options
to employees at an exercise price of $10.00 per share, 330,000 of which will
qualify as incentive stock options for Internal Revenue Code purposes after
shareholder approval of an increase in authorized options under the 1991 Plan.
Of these options, 400,000 options vest when the market value of the Company's
stock has reached targeted price levels for a period of 45 consecutive trading
days, or 9 years and 11 months from the date of grant, whichever is earlier, and
the remaining 30,000 options vest over a four year vesting period.

1993 Directors' Stock Option Plan

In February 1993, the Company adopted a Directors' Stock Option Plan ("1993
Directors' Plan") for nonemployee directors of the Company. The 1993 Directors'
Plan authorizes the granting of nonqualified options to acquire up to 100,000
shares of common stock at a price not less than fair market value on the date of
grant. The 1993 Directors' Plan allows for automatic annual grants upon each
year of a director's service. The stock options issued under the 1993 Directors'
Plan may be exercised at any time from date of grant, with a maximum option term
of five years.

F-15
<PAGE> 67

FISCHER IMAGING CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

A summary of the status of the Company's 1993 Directors' Stock Option Plan
as of December 31, 1993, 1994, and 1995 and the three months ended March 31,
1996 and the changes during those periods is as follows:

<TABLE>
<CAPTION>
1996
1993 1994 1995 ------------
----------- ----------- ----------- (UNAUDITED)
<S> <C> <C> <C> <C>
Outstanding at January 1......... -- 16,000 34,000 46,000
Granted........................ 16,000 18,000 18,000 18,000
Exercised...................... -- -- (6,000) --
Canceled....................... -- -- -- --
----------- ----------- ----------- ------------
Outstanding at end of period..... 16,000 34,000 46,000 64,000
=========== =========== =========== ============
Exercisable at end of period..... 16,000 34,000 46,000 64,000
=========== =========== =========== ============
Weighted average fair value of
options granted during
period......................... N/A N/A $ 1.76 $ 5.98
=========== =========== =========== ============
Range of exercise prices......... $7.25-$8.75 $6.50-$8.75 $4.00-$8.75 $4.00-$13.38
=========== =========== =========== ============
Weighted average exercise price
at end of period............... $ 8.56 $ 7.47 $ 6.40 $ 8.36
=========== =========== =========== ============
Weighted average exercise period
at end of period............... 5.0 years 4.5 years 4.0 years 3.5 years
=========== =========== =========== ============
</TABLE>

Employee Stock Purchase Plan

In December 1991, the Board of Directors adopted an Employee Stock Purchase
Plan, effective for the plan year beginning January 1, 1992. Under the plan, the
Company is authorized to issue up to 200,000 shares of common stock to its
fulltime employees, nearly all of whom are eligible to participate. Under the
terms of the plan, employees can have from 2% to 5% of their salary withheld to
purchase the Company's common stock. The purchase price of the stock is 85% of
the lower of its beginning-of-the-year or end-of-the-year market price. Under
the plan, the Company sold 29,692 shares, 22,072 shares and 24,522 shares to
employees for the years ended December 31, 1993, 1994 and 1995, respectively.
The fair value of each option grant is estimated, for disclosure purposes, on
the date of grant using the Black-Scholes model with the following assumptions
for 1995: no dividend yield; an expected life of one year; expected volatility
of 74%; and a risk free interest rate of 5.2%. The weighted average fair value
of those shares granted in 1995 was $5.89 per share.

The Company accounts for its stock-based compensation plans under APB No.
25, under which no compensation expense has been recognized, as all options have
been granted with an exercise price equal to the fair value of the Company's
common stock on the date of grant. The Company adopted SFAS 123 for disclosure
purposes in 1995. For SFAS 123 purposes, the fair value of each option grant and
stock purchase right has been estimated as of the date of grant using the
Black-Scholes option pricing model with the following weighted average
assumptions:

<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
1995 1996
------------ ---------------
<S> <C> <C>
Risk-free interest rate.................................. 5.96% 5.18%
Dividend rate............................................ 0% 0%
Expected volatility...................................... 74% 74%
Expected life............................................ 5.02 years 1.00 years
</TABLE>

F-16
<PAGE> 68

FISCHER IMAGING CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Using these assumptions, the fair value of the stock options granted in
1995 and the three months ended March 31, 1996 was approximately $1,239,000 and
$81,000, respectively, which would be amortized as compensation expense over the
vesting period of the options. Had compensation cost been determined consistent
with SFAS 123, utilizing the assumptions detailed above, the Company's net
income and earnings per share would have been reduced to the following pro forma
amounts (in thousands, except per share data).

<TABLE>
<CAPTION>
FOR THE
FOR THE THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
1995 1996
------------ ------------
<S> <C> <C>
(UNAUDITED)
Net earnings
As reported.............................................. $2,277 $1,073
Pro forma................................................ $1,828 $ 930
Net earnings per common and common equivalent share
As reported.............................................. $ .36 $ .15
Pro forma................................................ $ .29 $ .13
</TABLE>

1985 Stock Option Plan

The Company's 1985 Stock Option Plan authorized the granting of incentive
and nonqualified stock options. Upon approval of the 1991 Stock Option Plan, the
authority of the Board of Directors to grant additional options expired. In
September 1991, outstanding options, which are generally exercisable over a
ten-year period, became fully vested. The following table summarizes the
activity in the 1985 Plan:

<TABLE>
<S> <C>
Outstanding at December 31, 1992........................................... 25,960
Exercised (at $.78 per share).............................................. (11,153)
-------
Outstanding at December 31, 1993........................................... 14,807
Exercised (1,282 shares at $.78 per share and 3,205 shares at $2.81 per
share)................................................................... (4,487)
-------
Outstanding at December 31, 1994........................................... 10,320
Exercised.................................................................. --
-------
Outstanding at December 31, 1995........................................... 10,320
Exercised (at $.78 per share).............................................. (6,410)
Canceled................................................................... (3,910)
-------
Outstanding at March 31, 1996.............................................. --
=======
</TABLE>

1991 Directors' Stock Option Plan

In June 1991, the Company adopted a Directors' Stock Option Plan ("1991
Directors' Plan") for nonemployee directors of the Company. The 1991 Directors'
Plan authorized the granting of nonqualified options to acquire 50,000 shares of
common stock at a price not less than the fair market value on the date of
grant. No options were granted under the 1991 Directors' Plan during 1993, 1994
or 1995. During 1993, 3,000 options issued at $11 per share were canceled. At
December 31, 1994 and 1995 and March 31, 1996, 6,000 options remained
outstanding which were exercisable at $11.00 to $13.38 per share.

401(k) Plan

In 1985, the Company established The Fischer Imaging Employee Capital
Accumulation Plan, which is governed by Section 401(k) of the Internal Revenue
Code. Employees with a minimum of six months of service are eligible for the
plan. The Company makes discretionary contributions which vest over a four-year

F-17
<PAGE> 69

FISCHER IMAGING CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

period. Total Company contributions were approximately $150,000, $0, and
$120,000, for the years ended December 31, 1993, 1994 and 1995, respectively.

Incentive Compensation Plan

The Company has an incentive compensation plan under which management
employees, including the Company's executive officers, receive cash bonuses. The
amounts of such bonuses are determined based upon the Company's sales growth,
profitability and employees' performances as compared to performance objectives
established by the Board of Directors. During the years ended 1993, 1994 and
1995, the Company accrued bonuses of approximately $137,000, $144,000 and
$110,000, respectively, under this plan.

(9) FOREIGN OPERATIONS

The Company operates in a single industry segment with operations in the
U.S., Europe and Australia. The following is a summary of the Company's foreign
operations (in thousands):

<TABLE>
<CAPTION>
FOR THE YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, ---------------------
----------------------------- APRIL 2, MARCH 31,
1993 1994 1995 1995 1996
------- ------- ------- -------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
U. S. Operations:
Domestic........................ $65,963 $56,267 $58,548 $ 11,904 $16,846
Export.......................... 5,845 9,958 13,939 3,736 2,140
Foreign Operations:
Europe.......................... -- 1,399 2,829 465 586
Australia....................... 1,524 849 1,434 520 501
Transfers between geographic
areas........................... 961 1,634 2,796 826 943
Eliminations....................... (961) (1,634) (2,796) (826) (943)
------- ------- ------- ------- -------
Total...................... $73,332 $68,473 $76,750 $ 16,625 $20,073
======= ======= ======= ======= =======
Earnings (loss) from operations:
U.S................................ $ 1,072 $(3,293) $ 3,629 $ (71) $ 1,733
Europe............................. (280) (674) (682) (126) (137)
Australia.......................... (162) (323) (103) 22 (14)
Eliminations....................... 27 (47) 50 -- (50)
------- ------- ------- ------- -------
Total...................... $ 657 $(4,337) $ 2,894 $ (175) $ 1,532
======= ======= ======= ======= =======
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------- MARCH 31,
1993 1994 1995 1996
------- ------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Identifiable Assets (in thousands):
U.S....................................... $56,617 $47,544 $56,924 $58,472
Europe.................................... 167 1,667 2,214 1,767
Australia................................. 533 885 1,062 1,284
Eliminations.............................. (766) (3,207) (4,550) (4,626)
------- ------- ------- -------
Total............................. $56,551 $46,889 $55,650 $56,897
======= ======= ======= =======
</TABLE>

Transfers between geographic areas are recorded on the basis of
intercompany prices established by the Company.

F-18
<PAGE> 70

FISCHER IMAGING CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(10) RELATED PARTY TRANSACTIONS

The Company leases its manufacturing and administrative facility from JN
Properties (a general partnership whose partners include the Company's
chairman/chief executive officer and another stockholder/director of the
Company). The lease, which expires in July 2012, provides for adjustments of
base rent in 1995, 2000, 2005 and 2010 based on the then fair market rental
value of the premises. The increases are subject to a 7% maximum increase in
each adjustment year. Effective January 1, 1996, the annual rent increased from
$696,000 to $744,000. All taxes, insurance and maintenance expenses of the
facility are the responsibility of the Company.

In the second quarter of 1995, the Company issued 1,333,333 shares of
Series D Convertible Preferred Stock to GEMS (see Note 7), representing a 19%
ownership interest in the Company. GEMS is also a significant customer,
providing revenues to the Company of approximately $7.9 million or 10.3% and
$3.7 million or 18.4% of total revenues, in 1995 and the three months ended
March 31, 1996, respectively.

(11) COMMITMENTS AND CONTINGENCIES

The Company leases buildings (Note 10) and equipment under various
operating lease agreements which provide for the following minimum future lease
payments:

<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1996......................................... $ 1,666
1997......................................... 1,617
1998......................................... 1,585
1999......................................... 1,569
2000......................................... 1,596
Thereafter................................... 9,961
-------
Total.............................. $ 17,994
=======
</TABLE>

The Company is subject to periodic inspections by the U.S. Food and Drug
Administration ("FDA") whose primary purpose is to audit the Company's
compliance with Good Manufacturing Practices ("GMP"). In December 1994, the
Company's Denver facility was subject to a compliance audit and was issued an
Inspection Observations letter, Form 483, as well as a warning letter,
concerning some of its manufacturing processes. In addition, in August 1995, the
Company's Chicago facility was subject to a compliance audit and was issued an
Inspection Observations letter, Form 483, as well as a warning letter,
concerning some of its manufacturing processes. The Company has rectified the
deficiencies noted by the FDA. While the Company believes that FDA observations
and warning letters are becoming more routine, such observations and warning
letters may have a material adverse effect on the Company if it is not able to
comply.

The Company is also actively contesting various lawsuits in which it has
been named as defendant. In management's opinion, the effect of these disputes,
if any, will not have a significant effect on the accompanying consolidated
financial statements.

(12) INVESTMENTS AND ACQUISITIONS

Tetrad Corporation

In March 1993, the Company purchased 476,191 shares of Series B preferred
stock of Tetrad Corporation ("Tetrad"), an interoperative diagnostic ultrasound
system manufacturer. The shares of Series B preferred stock, which are not
readily marketable, and a subsequent note receivable resulting from the
Company's participation in a 1995 bridge financing, are accounted for at cost
which, as of December 31, 1995, equaled $550,000. During September 1995,
continuing softness in the markets for its products caused Tetrad

F-19
<PAGE> 71

FISCHER IMAGING CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

to reorganize operationally and financially. Under terms of the reorganization,
which included the surrender of shares held by all outside investors other than
the Company and voluntary reduction in bank debt, the Company maintained its
ownership position. The Company believes that pending contracts for further
development work should provide Tetrad with the financial capacity to continue
the development and commercialization of its promising technology base.
Therefore, although near term developments could prove otherwise, the Company
believes its investment in Tetrad is not impaired and, accordingly, has not
provided any reserve for the possible reduction in the long-term value of its
investment.

Bloom Associates, Ltd.

In September, 1992, the Company acquired the capital stock of Bloom
Associates, Ltd. of Reading, Pennsylvania for $4.3 million. The acquisition,
accounted for as a purchase, resulted in goodwill of $2.5 million which is being
amortized on a straight-line basis over 14 years.

In connection with the purchase, the Company entered into a ten-year
noncompetition agreement with Mr. Murray Bloom, the founder and former chairman
and chief executive officer of Bloom. Under the covenant not to compete
agreement, Mr. Bloom was to receive a total of $4.0 million, subject to upward
inflation adjustments, over a five-year period. The noncompete obligation was
discounted at a 6% effective interest rate, with amortization of the original
discount reported as interest expense in the accompanying consolidated
statements of operations. The Company and Mr. Bloom also entered into a
five-year employment agreement. In 1994, the noncompetition agreement was
amended to accelerate the payments to Mr. Bloom, in consideration for which, the
total amount owed to Mr. Bloom was reduced to $3.8 million to be paid through
1996.

Fischer Imaging Midwest, Inc.

During the fourth quarter of 1995, the Company reached an agreement in
principle for the acquisition of the 45% minority interest of Fischer Imaging
Midwest, Inc. in exchange for 63,162 shares of the Company's stock. The Company
accounted for this transaction, which closed in February 1996, as a purchase,
acquiring net assets with a net book value of approximately $331,000 and
recording goodwill of approximately $221,000. As part of the acquisition
agreement, the purchase price may be adjusted based on subsequent realization of
certain working capital assets as of June 1, 1996. The Company placed 10,000
shares in escrow, pending the outcome of this potential purchase price
adjustment.

F-20
<PAGE> 72

SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>
BALANCE AT CHARGES BALANCE AT
BEGINNING (CREDITS) TO DEDUCTIONS END OF
DESCRIPTION OF PERIOD EXPENSE AND OTHER PERIOD
- -------------------------------------------------- ---------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
Year ended December 31, 1993
Accounts receivable allowances.................. $539 $ 450 $ 70 $919
==== ===== ==== ====
Year ended December 31, 1994
Accounts receivable allowances.................. $919 $ 246 $269 $896
==== ===== ==== ====
Year ended December 31, 1995
Accounts receivable allowances.................. $896 $ (494) $(47) $449
==== ===== ==== ====
</TABLE>

F-21
<PAGE> 73

<TABLE>
<C> <S> <C>
- ------------------------------------------------------ ------------------------------------------------------

PICTURE A PICTURE B
- ------------------------------------------------------ ------------------------------------------------------
Imager III multi-purpose interventional x-ray imaging EP/X(2) bi-plane x-ray imaging system
system
---------------------------------------------

PICTURE C
---------------------------------------------
</TABLE>

TRAUMEX x-ray imaging system for trauma radiology
<PAGE> 74

No dealer, salesperson or any other person has been authorized to give
information or make any representation not contained in this Prospectus in
connection with the offer made by this Prospectus, and if given or made, such
information or representation must not be relied upon as having been authorized
by the Company or the Underwriters. This Prospectus does not constitute an offer
to sell or a solicitation of an offer to buy any securities other than the
Common Stock offered herein, or an offer to, or a solicitation of, anyone in any
jurisdiction in which such offer or solicitation is not authorized or in which
the person making such offer or solicitation is not qualified to do so or to
anyone to whom it is unlawful to make such offer or solicitation. Neither the
delivery of this Prospectus nor any sales made hereunder shall under any
circumstances create an implication that there has been no change in the affairs
of the Company since the date hereof.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary..................... 3
Risk Factors........................... 6
Use of Proceeds........................ 14
Price Range of Common Stock............ 14
Dividend Policy........................ 14
Capitalization......................... 15
Selected Consolidated Financial Data... 16
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 17
Business............................... 23
Management............................. 42
Principal and Selling Stockholders..... 44
Shares Eligible For Future Sale........ 46
Underwriting........................... 47
Legal Matters.......................... 48
Experts................................ 48
Available Information.................. 48
Financial Statements................... F-1
</TABLE>

1,350,000 SHARES
[LOGO]
COMMON STOCK
---------------------------------

P R O S P E C T U S
---------------------------------
PIPER JAFFRAY INC.

NEEDHAM & COMPANY, INC.
May , 1996
<PAGE> 75

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Company in connection
with the sale of the Common Stock being registered (all amounts are estimated
except the SEC Registration Fee and the NASD Filing Fee):

<TABLE>
<S> <C>
SEC Registration Fee...................................................... $ 6,658
National Association of Securities Dealers, Inc. Filing Fee............... 2,538
Nasdaq Additional Listing Application Fee................................. 17,500
Blue Sky Qualification Fees and Expenses (including legal fees)........... 10,000
Printing Expenses......................................................... 90,000
Legal Fees and Expenses................................................... 130,000
Accountants' Fees and Expenses............................................ 60,000
Transfer Agent and Registrar Fees......................................... 5,000
Miscellaneous Expenses.................................................... 28,304
--------
Total........................................................... $350,000
========
</TABLE>

ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS

The Company's Bylaws and Certificate of Incorporation provide that the
Company shall, to the fullest extent permitted by the General Corporation Law of
the State of Delaware, as amended from time to time, indemnify all directors and
officers of the Company. Section 145 of the Delaware General Corporation Law
provides in part that a corporation shall have the power to indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding (other than an action by or in
the right of the corporation) by reason of the fact that such person is or was a
director, officer, employee or agent of the corporation or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful.
Similar indemnity is authorized for such persons against expenses (including
attorneys' fees) actually and reasonably incurred in defense or settlement of
any threatened, pending or completed action or suit by or in the right of the
corporation, if such person acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the corporation, and
provided further that (unless a court of competent jurisdiction otherwise
provides) such person shall not have been adjudged liable to the corporation.
Any such indemnification may be made only as authorized in each specific case
upon a determination by the stockholders or disinterested directors that
indemnification is proper because the indemnitee has met the applicable standard
of conduct. Where an officer or a director is successful on the merits or
otherwise in the defense of any action referred to above, the corporation must
indemnify him against the expenses which such officer or director actually or
reasonably incurred.

Additionally, the Certificate of Incorporation and Bylaws provide for
mandatory indemnification of directors to the fullest extent permitted by
Delaware law. This provision does not eliminate the liability of a director (i)
for a breach of the director's duty of loyalty to the Company or its
stockholders; (ii) for acts or omissions by the director not in good faith or
which involve intentional misconduct or a knowing violation of law; (iii) for
liability arising under Section 174 of the Delaware General Corporation Law
(relating to the declaration of dividends and purchase or redemption of shares
in violation of the Delaware General Corporation Law); or (iv) for any
transaction from which the director derived an improper personal benefit.

II-1
<PAGE> 76

The Company has a directors and officers insurance policy with a $5.0
million coverage limit per occurrence and in the aggregate per year.

Section 6 of the Purchase Agreement (to be filed as Exhibit 1.1 hereto)
provides that the Underwriters will indemnify and hold harmless the Company and
each director, officer or controlling person of the Company from and against any
liability caused by any statement or omission in the Registration Statement or
Prospectus based on certain information furnished to the Company by the
Underwriters for use in the preparation thereof.

ITEM 16. EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- -------------------- ------------------------------------------------------------------------
<C> <S>
1.1 -- Form of Purchase Agreement*
4.1 -- Certificate of Incorporation of the Company(1)
4.2 -- Bylaws of the Company(1)
4.1 -- Amended and Restated Rights Agreement, dated as of November 3, 1994,
between the Company and American Securities Transfer, Inc. which
includes the Certificate of Designations for the Series C Junior
Participating Preferred Stock as Exhibit A and the form of Right
Certificate as Exhibit B(10)
4.2 -- Certificate of Designations for the Series D Convertible Preferred
Stock(10)
5.1 -- Opinion and Consent of Davis, Graham & Stubbs LLP*
10.1 -- Agreement, dated as of September 30, 1987, between the Company and
AF-Tekniska Rontgencentralen AB(1)
10.2 -- Addendum No. 1 to Agreement between the Company and ABB Tekniska
Rontgencentralen AB (previously known as AF-Tekniska Rontgencentralen
AB)(4)
10.3 -- Works Contract and Manufacturing Agreement, dated October 28, 1988,
between the Company and Storz Medical AG, as amended on January 21,
1991(2)
10.4 -- Master Purchase Agreement, dated October 1989, between the Company
and Picker International, Inc.(1)
10.5 -- Amendment, dated September 1, 1994, to the Master Purchase Agreement
between the Company and Picker International, Inc.(9)
10.6 -- Agreement, dated October 5, 1990, between the Company and Dornier
Madizintechnik GmbH(1)
10.7 -- Agreement, dated September 29, 1991, between the Company and
Diasonics, Inc.(4)
10.8 -- Cooperative Research and Development Agreement, dated September 24,
1993, between the Company and The Regents of the University of
California(9)
10.9 -- Purchase Agreement, dated October 2, 1993, between the Company and
Varian Associates Inc.(8)
10.10 -- Purchase Agreement, dated August 29, 1994, between the Company and
General Electric Company on behalf of GE Medical Systems(8)
10.11 -- Royalty Agreement, dated as of April 18, 1980, between the Company
and Jesse T. Littleton, M.D.(1)
10.12 -- Directors Stock Option Plan(1)
10.13 -- Non-Employee Director Stock Option Plan(7)
10.14 -- 1985 Stock Option Plan(1)
</TABLE>

II-2
<PAGE> 77

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- -------------------- ------------------------------------------------------------------------
<C> <S>
10.15 -- Stock Option Plan(1)
10.16 -- Employee Stock Purchase Plan(3)
10.17 -- Retention Bonus Plan(9)
10.18 -- Lease Agreement, dated as of June 12, 1992, between the Company and
the Teachers' Retirement System of the State of Illinois(8)
10.19 -- Lease Agreement, dated July 31, 1992, between the Company and JN
Properties(6)
10.20 -- Security Agreement, dated November 9, 1988, between the Company and
LaSalle National Bank, as amended on November 16, 1990(1)
10.21 -- Amendment, dated February 14, 1992, to Security Agreement between the
Company and LaSalle National Bank(4)
10.22 -- Amendment, dated August 19, 1992, to Security Agreement between the
Company and LaSalle National Bank(6)
10.23 -- Amendment, dated March 1, 1994, to Security Agreement between the
Company and LaSalle National Bank(8)
10.24 -- Loan and Security Agreement, dated December 26, 1985, between Fischer
Imaging Midwest, Inc. and American Bank of Arlington Heights and
related Promissory Note(2)
10.25 -- Purchase Agreement, dated as of September 10, 1992, between the
Company and Murray Bloom(5)
10.26 -- Non-Competition Agreement, dated September 18, 1992, between the
Company and Murray Bloom(5)
10.27 -- Amendment, dated March 1, 1994, to the Non-Competition Agreement
between the Company and Murray Bloom(9)
10.28 -- Stock Purchase Agreement, dated as of June 20, 1995, between the
Company and General Electric Company, acting through its GE Medical
Systems Division ("GE Medical Systems")(10)
10.29 -- Registration Rights Agreement, dated as of June 20, 1995, between the
Company and GE Medical Systems(10)
10.30 -- Manufacturing and License Agreement, dated as of June 20, 1995,
between the Company and GE Medical Systems(10)
10.31 -- Amendment, dated as of June 20, 1995, to Purchase Agreement, dated as
of August 29, 1994, between the Company and GE Medical Systems(10)
23.1 -- Consent of Arthur Andersen LLP(11)
23.2 -- Consent of Davis, Graham & Stubbs LLP*
24.1 -- Power of Attorney (included on page II-5)
</TABLE>

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

* To be filed by amendment.

(1) Incorporated by reference to the Company's Registration Statement on Form
S-1, File No. 33-41537, as filed with the Securities and Exchange
Commission (the "Commission") on July 3, 1991.

(2) Incorporated by reference to Amendment No. 1 to the Company's Registration
Statement on Form S-1, File No. 33-41537, as filed with the Commission on
July 18, 1991.

(3) Incorporated by reference to the Company's Registration Statement on Form
S-8, File No. 33-44599, as filed with the Commission on December 23, 1991.

II-3
<PAGE> 78

(4) Incorporated by reference to the Company's Form 10-K for the year ended
December 31, 1991, as filed with the Commission on March 30, 1992.

(5) Incorporated by reference to the Company's Form 8-K as filed with the
Commission on September 18, 1992.

(6) Incorporated by reference to the Company's Form 10-K for the year ended
December 31, 1992, as filed with the Commission on April 12, 1993.

(7) Incorporated by reference to the Company's Registration Statement on Form
S-8, File No. 33-64032, as filed with the Commission on June 8, 1993.

(8) Incorporated by reference to the Company's Form 10-K for the year ended
December 31, 1993, as filed with the Commission on March 31, 1994.

(9) Incorporated by reference to the Company's Form 10-K for the year ended
December 31, 1994, as filed with the Commission on April 14, 1995.

(10) Incorporated by reference to the Company's Form 8-K, as filed with the
Commission on July 3, 1995.

(11) Filed herewith.

ITEM 18. UNDERTAKINGS.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.

The undersigned registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.

II-4
<PAGE> 79

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-2 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Denver, State of Colorado, on this 10th day of May,
1996.

FISCHER IMAGING CORPORATION

By: /s/ MORGAN W. NIELDS
Morgan W. Nields
Chairman of the Board and Chief
Executive Officer

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears herein constitutes and appoints Morgan W. Nields and James A. Newcomb,
and each of them, as his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments to this
Registration Statement (including post-effective amendments), including a
registration statement filed pursuant to Rule 462(b) under the Securities Act of
1933, as amended, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in connection therewith, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or any of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

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

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ----------------------------
<C> <S> <C>
/s/ MORGAN W. NIELDS Chairman of the Board and May 10, 1996
- --------------------------------------------- Chief Executive Officer
Morgan W. Nields (Principal Executive
Officer)

/s/ JAMES A. NEWCOMB Vice President of Finance May 10, 1996
- --------------------------------------------- and Chief Financial
James A. Newcomb Officer (Principal
Financial and Accounting
Officer)

/s/ DAVID G. BRAGG, M.D. Director May 10, 1996
- ---------------------------------------------
David G. Bragg, M.D.

/s/ THOMAS J. CABLE Director May 10, 1996
- ---------------------------------------------
Thomas J. Cable

/s/ FRANK W.T. LaHAYE Director May 10, 1996
- ---------------------------------------------
Frank W.T. LaHaye

/s/ KINNEY L. JOHNSON Director May 10, 1996
- ---------------------------------------------
Kinney L. Johnson

/s/ LAWRENCE A. LEHMKUHL Director May 10, 1996
- ---------------------------------------------
Lawrence A. Lehmkuhl
</TABLE>

II-5
<PAGE> 80

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT PAGE
- ------------ ----
<C> <S> <C>
1.1 -- Form of Purchase Agreement*
4.1 -- Certificate of Incorporation of the Company(1)
4.2 -- Bylaws of the Company(1)
4.1 -- Amended and Restated Rights Agreement, dated as of November 3, 1994,
between the Company and American Securities Transfer, Inc. which
includes the Certificate of Designations for the Series C Junior
Participating Preferred Stock as Exhibit A and the form of Right
Certificate as Exhibit B(10)
4.2 -- Certificate of Designations for the Series D Convertible Preferred
Stock(10)
5.1 -- Opinion and Consent of Davis, Graham & Stubbs LLP*
10.1 -- Agreement, dated as of September 30, 1987, between the Company and
AF-Tekniska Rontgencentralen AB(1)
10.2 -- Addendum No. 1 to Agreement between the Company and ABB Tekniska
Rontgencentralen AB (previously known as AF-Tekniska Rontgencentralen
AB)(4)
10.3 -- Works Contract and Manufacturing Agreement, dated October 28, 1988,
between the Company and Storz Medical AG, as amended on January 21,
1991(2)
10.4 -- Master Purchase Agreement, dated October 1989, between the Company and
Picker International, Inc.(1)
10.5 -- Amendment, dated September 1, 1994, to the Master Purchase Agreement
between the Company and Picker International, Inc.(9)
10.6 -- Agreement, dated October 5, 1990, between the Company and Dornier
Madizintechnik GmbH(1)
10.7 -- Agreement, dated September 29, 1991, between the Company and Diasonics,
Inc.(4)
10.8 -- Cooperative Research and Development Agreement, dated September 24,
1993, between the Company and The Regents of the University of
California(9)
10.9 -- Purchase Agreement, dated October 2, 1993, between the Company and
Varian Associates Inc.(8)
10.10 -- Purchase Agreement, dated August 29, 1994, between the Company and
General Electric Company on behalf of GE Medical Systems(8)
10.11 -- Royalty Agreement, dated as of April 18, 1980, between the Company and
Jesse T. Littleton, M.D.(1)
10.12 -- Directors Stock Option Plan(1)
10.13 -- Non-Employee Director Stock Option Plan(7)
10.14 -- 1985 Stock Option Plan(1)
10.15 -- Stock Option Plan(1)
10.16 -- Employee Stock Purchase Plan(3)
10.17 -- Retention Bonus Plan(9)
10.18 -- Lease Agreement, dated as of June 12, 1992, between the Company and the
Teachers' Retirement System of the State of Illinois(8)
10.19 -- Lease Agreement, dated July 31, 1992, between the Company and JN
Properties(6)
10.20 -- Security Agreement, dated November 9, 1988, between the Company and
LaSalle National Bank, as amended on November 16, 1990(1)
</TABLE>
<PAGE> 81

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT PAGE
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<C> <S> <C>
10.21 -- Amendment, dated February 14, 1992, to Security Agreement between the
Company and LaSalle National Bank(4)
10.22 -- Amendment, dated August 19, 1992, to Security Agreement between the
Company and LaSalle National Bank(6)
10.23 -- Amendment, dated March 1, 1994, to Security Agreement between the
Company and LaSalle National Bank(8)
10.24 -- Loan and Security Agreement, dated December 26, 1985, between Fischer
Imaging Midwest, Inc. and American Bank of Arlington Heights and
related Promissory Note(2)
10.25 -- Purchase Agreement, dated as of September 10, 1992, between the Company
and Murray Bloom(5)
10.26 -- Non-Competition Agreement, dated September 18, 1992, between the
Company and Murray Bloom(5)
10.27 -- Amendment, dated March 1, 1994, to the Non-Competition Agreement
between the Company and Murray Bloom(9)
10.28 -- Stock Purchase Agreement, dated as of June 20, 1995, between the
Company and General Electric Company, acting through its GE Medical
Systems Division ("GE Medical Systems")(10)
10.29 -- Registration Rights Agreement, dated as of June 20, 1995, between the
Company and GE Medical Systems(10)
10.30 -- Manufacturing and License Agreement, dated as of June 20, 1995, between
the Company and GE Medical Systems(10)
10.31 -- Amendment, dated as of June 20, 1995, to Purchase Agreement, dated as
of August 29, 1994, between the Company and GE Medical Systems(10)
23.1 -- Consent of Arthur Andersen LLP(11)
23.2 -- Consent of Davis, Graham & Stubbs LLP*
24.1 -- Power of Attorney (included on page II-5)
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* To be filed by amendment.

(1) Incorporated by reference to the Company's Registration Statement on Form
S-1, File No. 33-41537, as filed with the Securities and Exchange
Commission (the "Commission") on July 3, 1991.

(2) Incorporated by reference to Amendment No. 1 to the Company's Registration
Statement on Form S-1, File No. 33-41537, as filed with the Commission on
July 18, 1991.

(3) Incorporated by reference to the Company's Registration Statement on Form
S-8, File No. 33-44599, as filed with the Commission on December 23, 1991.

(4) Incorporated by reference to the Company's Form 10-K for the year ended
December 31, 1991, as filed with the Commission on March 30, 1992.

(5) Incorporated by reference to the Company's Form 8-K as filed with the
Commission on September 18, 1992.

(6) Incorporated by reference to the Company's Form 10-K for the year ended
December 31, 1992, as filed with the Commission on April 12, 1993.
<PAGE> 82

(7) Incorporated by reference to the Company's Registration Statement on Form
S-8, File No. 33-64032, as filed with the Commission on June 8, 1993.

(8) Incorporated by reference to the Company's Form 10-K for the year ended
December 31, 1993, as filed with the Commission on March 31, 1994.

(9) Incorporated by reference to the Company's Form 10-K for the year ended
December 31, 1994, as filed with the Commission on April 14, 1995.

(10) Incorporated by reference to the Company's Form 8-K, as filed with the
Commission on July 3, 1995.

(11) Filed herewith.

<PAGE> 1

EXHIBIT 23.1

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the use of our
reports and to all references to our Firm included in or made a part of this
Form S-2 Registration Statement.

/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP

Denver, Colorado,
May 10, 1996.