VITAL IMAGES INC, S-3, 2000-11-03

VITAL IMAGES INC
S-3, 2000-11-03
ORTHOPEDIC, PROSTHETIC & SURGICAL APPLIANCES & SUPPLIES

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As filed with the Securities and Exchange Commission on November 3, 2000
Registration No. 333-________

================================================================================

U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________

FORM S-3
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
____________________

VITAL IMAGES, INC.
(Exact name of registrant as specified in its charter)

Minnesota 42-1321776
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)

3300 Fernbrook Lane N., Suite 200
Plymouth, Minnesota 55447
Telephone: (952) 915-8000
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)

Gregory S. Furness
3300 Fernbrook Lane N., Suite 200
Plymouth, Minnesota 55447
Telephone: (952) 915-8000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)

Copies of communications to:
Michele D. Vaillancourt, Esq.
Winthrop & Weinstine, P.A.
3000 Dain Rauscher Plaza
60 South Sixth Street
Minneapolis, Minnesota 55402
Telephone: (612) 347-0700
____________________

Approximate date of commencement of proposed sale to the public:
From time to time, after the effective date of this Registration Statement.

If the only securities being offered on this Form are to be offered pursuant to
dividend or interest reinvestment plans, check the following box. [_]

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, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]

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

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

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]

<TABLE>
<CAPTION>
=======================================================================================================================
Title of Each Class of Amount to Proposed Proposed Amount of
Securities to Be Registered Be Registered Maximum Maximum Registration
Offering Price Aggregate Fee
Per Share (1) Offering Price (1)
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<S> <C> <C> <C> <C>
Common Stock, $.01 par value 3,463,651 shares $5.875 $20,348,950 $5,372
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</TABLE>
(1) Pursuant to Rule 457(c), the offering price is equal to the average of the
high and low prices of the common stock as of October 27, 2000 as quoted
on the Nasdaq SmallCap 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 this registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
================================================================================
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+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ The information in this Pospectus is not complete and may change. The +
+ Securities may not be sold until the Registration Statement filed with the +
+ Securities and Exchange Commission is effective. This Prospectus is not an +
+ offer to sell the securities and is not soliciting an offer to buy these +
+ securities in any state where the offer or sale is not permitted. +
+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++

This is a preliminary prospectus and is subject to completion.

Prospectus

3,463,651 Shares

VITAL IMAGES, INC.

Common Stock

This Prospectus relates to the sale of up to 3,463,651 shares of our common
stock by certain selling shareholders, of which 1,813,651 shares may be or have
been purchased upon the exercise of common stock purchase warrants. All shares
will be sold by the selling shareholders, and we will not receive any of the
proceeds from the sale of shares. We will receive proceeds upon the exercise of
the warrants. We have agreed to pay the expenses related to the registration
and resale of the shares.

Our common stock is currently traded on the Nasdaq SmallCap Market under the
symbol "VTAL." On October 30, 2000, the last reported sale price for our common
stock reported on the Nasdaq SmallCap Market was $5.625 per share.

See "Risk Factors" beginning on page 2 for certain risks you should consider
before purchasing any shares.

_______________________

Neither the Securities and Exchange Commission or any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is
a criminal offense.

____________, 2000.
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TABLE OF CONTENTS
Page

Available Information.............................. i

Summary............................................ 1

Risk Factors....................................... 2

Use of Proceeds.................................... 9

Selling Shareholders............................... 10

Plan of Distribution............................... 19

Legal Matters...................................... 20

Experts............................................ 20

Where You Can Find Additional Information.......... 20

Documents We Have Incorporated by Reference........ 21

Information Concerning Forward-Looking Statements.. 21

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SUMMARY

The following information is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, incorporated
by reference in this Prospectus. This Prospectus contains forward-looking
statements that involve risks and uncertainties and that are qualified in their
entirety by the cautions and risk factors contained elsewhere in this Prospectus
and in the documents incorporated by reference herein. Purchasers of shares of
Common Stock are cautioned that our actual results may differ significantly from
the results discussed in the forward-looking statements. Factors that could
cause or contribute to such differences include those factors discussed herein
under "Risk Factors" and elsewhere in this Prospectus.

Vital Images, Inc.

We develop, market and support medical visualization and analysis software
for use primarily in clinical diagnosis, surgical planning and medical
screening. Our software applies proprietary computer graphics and image
processing technologies to a wide variety of data supplied by computed
tomography ("CT") scanners, magnetic resonance ("MR") imaging devices and
ultrasound scanning equipment. Our products allow clinicians to create both two-
and three-dimensional views of human anatomy and to non-invasively navigate
within these images to better visualize and understand internal structures and
pathologies. We believe that our high-speed visualization technology and
customized protocols cost-effectively bring 3D visualization and analysis into
the routine, day-to-day practice of medicine.

Vitrea(R), our advanced medical visualization and analysis product for
radiological and surgical applications, received FDA approval in November 1996
and was released for sale in October 1997. Due to its speed and ease-of-use, we
believe that Vitrea is the first 3D medical visualization product with the
ability to appeal primarily to the clinical market. Historically, 3D medical
visualization software was slow, difficult to use, and operated only on
expensive workstations. Consequently, the functionality of such software was
appealing only for research applications. Our Vitrea software combines speed
with ease-of-use to enable a physician to access, manipulate and analyze 3D
images, typically in less than five minutes. We offer Vitrea primarily as an
integrated software and hardware system, consisting of Vitrea software installed
on a personal computer. To date, we have sold approximately 290 licenses for
Vitrea to hospitals, clinics and other sites, including eight of the nation's
top 11 hospitals.

We believe that growing acceptance of 3D visualization and analysis offers
numerous market expansion opportunities. Research and development efforts are
currently focused on using our base of visualization technology to expand to
other imaging modalities, such as x-ray angiography. We are also developing
visualization and analysis tools for non-invasive screening applications for
diagnostic imaging, such as CT colonography for colon cancer, surgical planning,
intra-operative visualization and real-time interventional 3D visualization.

The global market for 3D visualization and analysis is largely unpenetrated
and growing rapidly. Today, only a small percentage of hospitals and clinics
have purchased 3D visualization products for use in diagnostic imaging. Recent
technological advances in both computer hardware and software development have
dramatically improved the cost-to-performance ratio, bringing the prices for 3D
visualization and analysis products into the reach of most healthcare providers.
In addition, increasing acceptance of industry standards, the increasing number
of images being produced by medical imaging devices and new clinical
applications, among other factors, are also driving demand for visualization and
analysis products. Based on an increasing number of 3D procedures being
performed as a result of the growing use of imaging technology, new 3D screening
procedures, and broader acceptance of 3D applications, we estimate that the
potential worldwide market for 3D visualization software and workstations will
grow to more than $1 billion within the next three to five years.

We were incorporated in Iowa in September 1988. In March 1997, we re-
incorporated our Company under the laws of the State of Minnesota. Our
principal executive offices are located at 3300 Fernbrook Lane N., Suite 200,
Plymouth, Minnesota 55447, and our telephone number is (952) 915-8000, our
facsimile number is (952) 915-8030 and our website address is
www.vitalimages.com. Reference to our website is not intended to incorporate
information found on the website into this Prospectus.

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RISK FACTORS

An investment in our common stock involves a high degree of risk. You
should carefully consider the following risk factors, in addition to the other
information set forth in this Prospectus, before making your investment
decision.

We have a history of operating losses.

We had operating losses of $3,303,000, $3,467,000, and $5,211,000 for the
years ended December 31, 1999, 1998 and 1997, respectively, and with the
exception of the fiscal year ended October 31, 1995, we have incurred operating
losses for each year since 1990. As of June 30, 2000, our accumulated deficit
was $18,696,000. Our ability to attain and maintain profitability will depend
on, among other things, our ability to successfully market our products, make
new product offerings, respond to competitive developments and attract and
retain qualified sales, technical and management employees. Accordingly, we may
not achieve profitable operations.

We are dependent upon the growth in the market for three dimensional medical
imaging.

The medical visualization industry in which we market our products is still
developing due to:

. the fairly recent availability of high performance computers at
reduced prices;

. the recent adoption of industry standards for the generation,
transmission and storage of medical imaging data; and

. changing medical practices.

Historically, clinicians have believed that three-dimensional imaging was
too slow or difficult for clinical use. This perception was due largely to the
relatively slower processing speed of workstations available in the past. We
believe that the recent advances in the affordability of high performance
computers and in the development of industry standards for the generation,
transmission, and storage of imaging data will provide opportunities for growth
in the medical visualization industry. However, the medical visualization
industry may not continue to develop in the manner we anticipate or provide
growth opportunities for our company and our software products. Further, our
business strategies may not be successful as the medical visualization industry
continues to evolve. Ultimately, if the medical visualization industry fails to
develop as we expect, our business, results of operations and financial
condition will be materially and adversely affected.

Our success depends on the continued acceptance of our Vitrea software.

Our success depends on our ability to successfully market our Vitrea
software for clinical use, and the ability and willingness of physicians to use
two- and three-dimensional visualization software in clinical diagnosis,
surgical planning, patient screening, and other diagnosis, surgical, and
treatment protocols. The three-dimensional visualization offered by Vitrea
represents a new alternative to the conventional methods traditionally used for
viewing medical images in the clinical setting. The acceptance of Vitrea by
physicians and other clinicians will depend on our ability to educate those
users as to the speed, ease-of-use and benefits offered by the Vitrea system, as
well as our timely introduction of new features and functions. However,
clinicians may not choose three-dimensional visualization software over less
expensive two-dimensional visualization software, and we may not succeed in our
efforts to further develop, commercialize, and achieve market acceptance for our
Vitrea product or any other products in the clinical setting.

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We rely substantially on a single product.

Revenue from software and hardware sales of the Vitrea system constituted
78% of our total revenue for the year ended December 31, 1999 and 71% of our
total revenue for the year ended December 31, 1998. We anticipate that revenue
from the sale of Vitrea will continue to account for a substantial portion of
our revenue for the foreseeable future. If the clinical market does not accept
and use Vitrea in sufficient volume to increase our revenues, our operating
results and financial condition will be adversely impacted.

We may require additional capital in the future.

If our operations progress as anticipated, we believe that our existing
cash balances, together with cash flows from operations and borrowings available
under our credit facility, should be sufficient to satisfy our cash requirements
for at least the next 12 months.

The timing of our future capital requirements will depend on a number of
factors, including, but not limited to:

. our ability to successfully market our products;

. the ability and willingness of physicians to use two- and three-
dimensional visualization software in clinical diagnosis, surgical
planning, patient screening and other diagnosis, surgical, and
treatment protocols;

. the impact of competition in the medical visualization business;

. our ability to differentiate our products from competing products;

. the capital equipment budget constraints of some potential purchasers;

. our ability to build an effective sales and distribution force; and

. our ability to enhance existing products and develop new products on a
timely basis.

To the extent that our operations do not progress as anticipated,
additional capital may be required sooner. Additional capital may not be
available on acceptable terms, or at all. Our failure to obtain required capital
would have a material adverse effect on our business. If we issue additional
equity securities in the future, our current shareholders could experience a
dilution in voting and ownership interests.

We participate in a highly competitive industry.

We face intense competition in the medical visualization industry. We
expect technology to continue to develop rapidly, and our success will depend to
a large extent on our ability to maintain a competitive position with our
products. Our competitors in the medical visualization industry include large,
established manufacturers of CT and MR imaging equipment. Companies such as GE
Medical Systems, Siemens Medical Systems, Marconi Medical Systems and Philips
Medical Systems typically offer their own imaging software and visualization
workstations as part of their integrated imaging and scanner systems. Our
ability to successfully market and sell our current medical visualization
products to prospective customers depends, in part, on our ability to persuade
such customers to separate the purchase of CT or MR equipment from the selection
and purchase of visualization workstations. In addition to having significantly
greater capital and staffing resources for research and development that are
critical to success in the rapidly changing medical visualization industry, such
companies also have well-established marketing and distribution networks and
have a competitive advantage in marketing visualization and analysis tools as an
integrated part of their imaging products. While price has been less

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significant than other factors, increasing competition may result in price
reductions and reduced gross margins. Additionally, we face competition from
other entities, such as other information storage and retrieval vendors,
hospital, radiology and clinical systems suppliers and internal development
projects sponsored by hospital radiology departments. We may not be able to
compete effectively with such manufacturers or competing entities.

Our products may become obsolete or non-competitive.

The medical imaging and visualization market is characterized by rapid
innovation and technological change. We may be unable to compete effectively in
the marketplace, and products developed by our competitors may render our
products obsolete or non-competitive. Similarly, our competitors may succeed in
developing or marketing products that are viewed as providing superior clinical
performance or are less expensive than our current or future products.

A limited number of major customers may account for a substantial portion of our
revenues.

One of our principal distribution channels is to sell our Vitrea product
and visualization workstations for inclusion with the delivery of medical
imaging equipment being sold by Toshiba America Medical Systems ("Toshiba"). Our
sales to Toshiba accounted for approximately 21% and 23% of the Company's total
revenue for the years ended December 31, 1999 and 1998, respectively. In
September 2000, we entered into a reseller agreement with Toshiba. Under the
terms of the agreement, Toshiba has committed to purchase approximately
$6,000,000 of our products and services through March 2002. We believe a limited
number of large customers may continue to account for a significant portion of
our revenue during any given period for the foreseeable future. A reduction,
delay or cancellation of orders from one or more of our significant customers
would likely have a material adverse effect on our operating results.

We may experience fluctuations in operating results.

We may experience significant fluctuations in future annual and quarterly
operating results. If these fluctuations occur, they may result in volatility in
the price of our common stock. Quarterly revenues and operating results may
fluctuate as a result of a variety of factors including, but not limited to:

. the timing of significant orders,

. the timing of our product enhancements and new product introductions and
those of our competitors and customers;

. the pricing of our products;

. changes in customers' budgets; and

. competitive conditions.

Many of these factors are beyond our control.

We are subject to government regulation.

Our products are subject to regulation by the FDA and by comparable
agencies in foreign countries. In the United States, the FDA regulates the
development, introduction, manufacturing, labeling and recordkeeping procedures
for medical devices, including medical visualization and analysis software and
systems. The process of obtaining marketing clearance from the FDA for new
products and new applications for existing products can be time-consuming and
expensive. We have received

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marketing clearance from the FDA pursuant to 510(k) pre-market notifications for
all of our current products. Vitrea has been approved to be marketed for use
with CT and MR scanners, and our VScore software products have been approved for
use in coronary artery calcium scoring. ATL Ultrasound, Inc. ("ATL") is
responsible for obtaining any FDA approval necessary for the marketing and sale
of Advanced 3DI. The FDA may not grant clearance with respect to our future
products or enhancements, or future FDA review may involve delays that could
adversely affect our ability to market such future products or enhancements. In
addition, our future products or enhancements may be subject to the more lengthy
and expensive pre-market approval process with the FDA.

Even if we obtain regulatory approvals from the FDA to market a product,
these approvals may entail limitations on the indicated uses of the product.
Product approvals by the FDA can also be withdrawn due to failure to comply with
regulatory standards or the occurrence of unforeseen problems following initial
approval. The FDA could also limit or prevent the distribution of our products
and has the power to require the recall of such products. FDA regulations depend
heavily on administrative interpretation, and future interpretations made by the
FDA or other regulatory bodies may adversely affect our business. The FDA may
inspect our business and our facilities from time to time to determine whether
we are in compliance with various regulations relating to specification,
development, documentation, validation, testing, quality control and product
labeling. If the FDA determines that we are in violation of such regulations, it
could impose civil penalties, including fines, recall or seize products and, in
extreme cases, impose criminal sanctions.

We market our products both domestically and internationally. International
regulatory bodies have established varying regulations governing product
standards, packaging requirements, labeling requirements, import restrictions,
tariff regulations, duties and tax requirements. Our inability or failure to
comply with the varying regulations, or the imposition of new regulations, could
restrict our ability to sell our products internationally.

The protection of our intellectual property may be uncertain and we may face
possible claims of others.

Although we have filed patent applications with respect to certain aspects
of our technology, we generally do not rely on patent protection with respect to
our products and technologies. Instead, we rely primarily on a combination of
trade secret and copyright law, employee and third-party nondisclosure
agreements and other protective measures to protect intellectual property rights
pertaining to our products and technologies. Such measures may not provide
meaningful protection of our trade secrets, know-how or other intellectual
property in the event of any unauthorized use, misappropriation or disclosure.
Others may independently develop similar technologies or duplicate any
technology developed by us. In addition, to the extent that any patents are
applied for, such applications may not result in issued patents or, if issued,
such patents may not be valid or of value. Our products and technologies may
infringe existing patents or intellectual property rights of third parties. The
costs of defending an intellectual property claim could be substantial and could
adversely affect our business, even if we were ultimately successful in
defending any such claims. If our products or technologies were found to
infringe the rights of a third party, we could be required to pay significant
damages or license fees or cease production, which could have a material adverse
effect on our business.

Our insurance coverage may not be adequate to pay products liability claims.

The manufacture and sale of products used in the practice of medicine
entail significant risk of product liability claims. While we currently maintain
product liability insurance in the amount of $6,000,000 per occurrence and
$7,000,000 in total and errors and omissions coverage in the amount of
$6,000,000 per occurrence and in total, our coverage limits may not be adequate
to protect us from any liabilities we might incur in connection with the sale of
our products. Further, we may not be able to

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maintain this level of coverage in the future. We will also require increased
product liability coverage as we release additional products and updates.
Product liability insurance is expensive and may not be available to us in the
future on acceptable terms, if at all. A successful product liability claim or
series of such claims in excess of our insurance coverage could have a material
adverse effect on our business.

We are dependent on a key employee and we need to hire additional personnel.

We depend upon the continued active participation of Dr. Vincent J. Argiro,
Ph.D., our Chief Technology Officer and Founder. The loss of the services of Dr.
Argiro could have a material adverse effect on our future business. We do not
have an employment agreement with Dr. Argiro, but we do have a confidentiality
and non-competition agreement with Dr. Argiro. We maintain key life insurance
coverage on Dr. Argiro's life in the amount of $500,000.

Our ability to enhance and develop markets for our current products as well
as to introduce new products to the marketplace also depends on our ability to
attract and retain qualified scientific and management personnel. We compete for
such personnel with other companies, academic institutions, government entities
and organizations, many of which have substantially greater capital resources,
name recognition, and research and development capabilities. We may not be
successful in recruiting or retaining such personnel.

We face certain risks in managing our future growth.

The execution of our business plan will place increasing demands on our
existing management and resources. We may not effectively manage any expansion
of our business, which could have a material adverse effect on our business,
financial condition and results of operations.

We are dependent on third-party reimbursement.

Our products are purchased by hospitals, clinics and other users, which
bill various third party payors, such as government health programs, private
health insurance plans, managed care organizations and other similar programs,
for the healthcare goods and services provided to their patients. There is
currently a Current Procedural Terminology (CPT) reimbursement code for
procedures which utilize our products. However, the amount of such reimbursement
varies by location and is subject to change. Payors may deny reimbursement if
they determine that a product used in a procedure was not used in accordance
with established payor protocol regarding cost-effective treatment methods or
was used for an unapproved indication. Third party payors are increasingly
challenging the prices charged for medical services and, in some instances, have
put pressure on service providers to lower their prices or reduce their
services. We are unable to predict what changes will be made in the
reimbursement methods used by third party healthcare payors. The procedures in
which our products are used may not be considered cost effective by third party
payors. Reimbursement for such procedures may not be available or, if available,
low reimbursement levels may adversely affect our ability to sell our products
on a profitable basis. In addition, there have been and may continue to be
proposals by legislators, regulators and third party payors to curb further
these costs in the future. A failure by hospitals and other users of our
products to obtain reimbursement from third party payors, changes in third party
payors' policies toward reimbursement for procedures using our products or
legislative action could have a material adverse effect on our business.

Healthcare reform may negatively impact our business.

The levels of revenue and profitability of medical technology companies may
be affected by the efforts of government and third party payors to contain or
reduce the costs of health care through various means. In the United States
there have been, and we expect that there will continue to be, a number of

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federal, state, and private proposals to control healthcare costs. These
proposals may contain measures intended to control public and private spending
on health care as well as to provide universal public access to the health care
system. If enacted, these proposals may result in a substantial restructuring of
the healthcare delivery system. Significant changes in the nation's health care
system could have a substantial impact on the manner in which we conduct our
business and could have a material adverse effect on our business, financial
condition and results of operations.

We may issue shares of preferred stock without the consent of our holders of
common stock.

Our Articles of Incorporation authorize our Board of Directors, without any
action by our shareholders, to establish the rights and preferences of up to
5,000,000 shares of currently undesignated preferred stock. Such shares of
preferred stock could possess voting and conversion rights which could adversely
affect the voting power of the holders of the common stock and may have the
effect of delaying, deferring or preventing a change in control of our company.

We are subject to certain laws and plans which may discourage takeover attempts.

We are also subject to certain "anti-takeover" provisions of the Minnesota
Business Corporation Act. In addition, we have adopted a Shareholder Rights Plan
(the "Rights Agreement") designed to protect us and our shareholders from
unsolicited attempts to acquire our company. These measures may, in certain
circumstances, deter or discourage takeover attempts and other changes in
control not approved by our Board of Directors, and may have a depressive effect
on any market for our stock. As a result, our shareholders may lose
opportunities to dispose of their shares at the higher prices typically
available in takeover attempts or that may be available under a merger proposal.
In addition, these measures may have the effect of permitting our current
directors to retain their positions and place them in a better position to
resist changes that our shareholders may wish to make if they are dissatisfied
with the conduct of our business.

We have never paid any cash dividends.

We have not paid cash dividends on our common stock in the past and we do
not intend to do so in the foreseeable future.

Our directors may not be held personally liable for certain actions.

Our Articles of Incorporation provide that our directors shall not be
personally liable to us or our shareholders for monetary damages for breach of
fiduciary duty as a director, with certain exceptions. These provisions may
discourage shareholders from bringing suit against a director for breach of
fiduciary duty and may reduce the likelihood of derivative litigation brought by
shareholders on behalf of us against a director. In addition, our Bylaws provide
for mandatory indemnification of directors and officers to the fullest extent
permitted by Minnesota law.

If our common stock is delisted from the Nasdaq SmallCap Market, the market for
our common stock may be limited.

If the shares of our Common Stock were to be suspended or delisted from the
Nasdaq SmallCap Market, it would be subject to the SEC's "penny stocks" rules
which impose additional sales practice requirements on broker-dealers who sell
such securities to persons other than established customers and "accredited
investors" (for example, individuals with a net worth in excess of $1,000,000 or
an annual income exceeding $200,000, or $300,000 together with their spouses).
For transactions covered by these rules, a broker-dealer must make a special
suitability determination of the purchase and must have received the purchaser's
written consent to the transaction prior to the sale. Disclosure also is
required to

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be made regarding the risks of investing in penny stocks in both public
offerings and in secondary trading and regarding commissions payable to both the
broker-dealer and the registered representative, current quotations for the
securities, and the rights and remedies available to an investor in cases of
fraud in penny stock transactions. Finally, monthly statements must be sent
disclosing recent price information for the penny stocks held in the account and
information on the limited market in penny stocks. Consequently, these rules
could negatively affect a broker-dealer's ability to sell shares of our Common
Stock.

The exercise of outstanding warrants and options may adversely affect our stock
price.

Warrants to purchase 1,813,651 shares of our common stock and options to
purchase 2,082,444 shares of our common stock were outstanding as of September
30, 2000. All of the warrants and many of the options are currently exercisable.
These options and warrants are likely to be exercised at a time when the market
price for our common stock is higher than the exercise prices.

With respect to the outstanding warrants to purchase 1,650,000 shares of
our common stock at an exercise price of $3.75 per share, we have the right to
redeem such warrants at a redemption price of $.01 per share upon the
satisfaction of certain conditions. Specifically, if the closing bid price for
our common stock exceeds $5.75 per share for any 30 consecutive trading days
prior to a notice of redemption and a registration statement covering the resale
of the warrant shares has been filed with the Commission and is effective, we
may redeem the warrants on 30 days notice. As of the date of this Prospectus, we
have satisfied the conditions for redemption of the warrants. A redemption
notice would likely cause the warrants to be exercised and the underlying shares
of our common stock to be issued at prices below the then market price for our
common stock. If holders of these outstanding options and warrants sell the
common stock received upon exercise, it may have a negative effect on the market
price of our common stock. In addition, we are registering the resale of 163,651
shares which may be purchased upon the exercise of warrants issued to the
placement agent in connection with our December 1999 private placement.

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USE OF PROCEEDS

The selling shareholders will sell all of the common stock covered by this
Prospectus. We will not receive any of the proceeds from such sales.

However, if all 1,650,000 warrants whose underlying shares are being
registered for resale are exercised at their current exercise price of $3.75 per
share, we will receive net proceeds from such exercises of approximately
$6,160,000. In addition, we may receive net proceeds of approximately $525,000
from the exercise of the agent's warrants to purchase up to 163,651 shares at an
exercise price of $3.25 per share. We intend to use the proceeds from the
exercise of the warrants for working capital and other general corporate
purposes.

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SELLING SHAREHOLDERS

This prospectus covers offers and sales of shares of our common stock by
the selling shareholders, including shares issuable upon exercise of warrants,
issued in our December 1999 private placement.

In the private placement, we offered units to accredited investors, at a
price of $3.25 per unit, each unit consisting of one share of common stock and
one warrant. Each warrant is exercisable for a five year period expiring
December 15, 2004 to purchase one share of common stock at an exercise price
(subject to adjustment) of $3.75 per share. We sold a total of 1,650,000 units.
In addition, pursuant to our obligation to the placement agent for the offering,
we issued an aggregate of 163,651 warrants having an exercise price of $3.25 per
share (all of which were transferred by the placement agent to certain of its
employees). These warrants were issued as a portion of the placement agent's
compensation.

The table below lists the selling shareholders, shows the shares of common
stock beneficially owned by each of the selling shareholders as of September 30,
2000 and the shares offered for resale by each of the selling shareholders.
Beneficial ownership includes shares which the selling shareholders can acquire
upon exercise of the warrants (all of which are currently exercisable) or of
options exercisable currently or within 60 days after September 30, 2000. Our
registration of these shares does not necessarily mean that any selling
stockholder will sell all or any of their shares of common stock. The
"Beneficial Ownership After Offering" columns in the table assume that all
shares covered by this prospectus will be sold by the selling shareholders and
that no additional shares of common stock are bought or sold by any selling
stockholder. Except for the placement agent, or as noted in the footnotes, no
selling stockholder has had, within the past three years, any position, office
or other material relationships with us.

The information provided in the table below is from the selling
shareholders, reports furnished to us under rules of the SEC, and our stock
ownership records.

<TABLE>
<CAPTION>
Shares Beneficially Shares Beneficially
Owned Prior Shares Owned After
To Offering (1) To be Sold Offering (1)
----------------------------------------------------- ---------- --------------------
Shares Total
Underlying Number of
Beneficial Owner Shares(2) Warrants Shares Percent(3) Number Percent (3)
---------------- --------- -------- ------ ---------- ------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Urban L. Abendroth 1,200 1,200 2,400 * 2,400 0 --
Robert G. Allison 10,000 10,000 20,000 * 20,000 0 --
Frank S. Amendola Jr. 2,500 2,500 5,000 * 5,000 0 --
Ernest Andberg(14) 0 1,700 1,700 * 1,700 0 --
Ernest W. & Marcia M. Andberg 10,000 10,000 20,000 * 20,000 0 --
Peter Asher Separate Property 8,800 8,800 17,600 * 17,600 0 --
Pam Artist Management Inc. Profit 11,200 11,200 22,400 * 22,400 0 --
Sharing
Barbara Steinkamp(14) 0 457 457 * 457 0 --
Barbara H. Steinkamp Trust(14) 3,000 3,000 6,000 * 6,000 0 --
Donald Steinkamp(14) 0 2,096 2,096 * 2,096 0 --
William Basham(14) 0 868 868 * 868 0 --
Juanita Bartlett TTEE Juanita 9,300 9,300 18,600 * 18,600 0 --
Bartlett Living Trust
Baxter Financial Management Limited 10,000 10,000 20,000 * 20,000 0 --
Partnership
</TABLE>

10
<PAGE>
<TABLE>
<CAPTION>
Owned Prior Shares Owned After
To Offering (1) To be Sold Offering (1)
----------------------------------------------- ------------ ---------------------
Shares Total
Underlying Number of
Beneficial Owner Shares(2) Warrants Shares Percent(3) Number Percent (3)
--------------- --------- -------- ------- --------- ----- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Gary A. Bergren 10,000 10,000 20,000 * 20,000 0 ---

James & Marjorie Bird 10,000 10,000 20,000 * 20,000 0 ---

Michael A. Bird(14) 10,000 11,000 21,000 * 21,000 0 ---

James Bjornlie(14) 0 920 920 * 920 0 ---

Donald E. & Helen R. Boen 8,000 8,000 16,000 * 16,000 0 ---

Alma F. Boylan TTEE Alma E 2,000 2,000 4,000 * 4,000 0 ---
Boylan Trust

Joyce R. Brown 7,692 7,692 15,384 * 15,384 0 ---

Ray G. Brown 7,692 7,692 15,384 * 15,384 0 ---

Jon H. Buck 2,153 2,153 4,306 * 4,306 0 ---

Carol Burnett TTEE Carol Burnett 60,000 60,000 120,000 1.75% 120,000 0 ---
Living Trust

Carol Burnett IRA 18,600 18,600 37,200 * 37,200 0 ---

Mark Bystrom(14) 0 600 600 * 600 0 ---

Craig L. Campbell 10,000 10,000 20,000 * 20,000 0 ---

David & Denise Chase TTEE Chase
Living Trust 6,500 6,500 13,000 * 13,000 0 ---

Cherokee Productions Profit Sharing 4,500 4,500 9,000 * 9,000 0 ---
Plan

Larry Christenson(14) 0 525 525 * 525 0 ---

Cine II Profit Sharing Plan 2,000 2,000 4,000 * 4,000 0 ---

Sam L. Claassen 15,385 15,385 30,770 * 30,770 0 ---

Dain Rauscher Custodian FBO 6,000 6,000 12,000 * 12,000 0 ---
Sheldon Chester IRA

David F. Dalvey(14) 3,000 8,338 11,338 * 11,338 0 ---

Laura Daly TTEE Laura Daly Trust 2,500 2,500 5,000 * 5,000 0 ---

Delaware Charter Guarantee & Trust 14,923 14,923 29,846 * 29,846 0 ---
FBO Robert F. McCullough IRA

Doctor Phillip Marcus Obstetrics 10,000 10,000 20,000 * 20,000 0 ---
GYN Infertility PST

Donald F. Hagen Revocable Trust 30,770 30,770 61,540 * 61,540 0 ---

Ellis Family Limited Partnership 10,000 10,000 20,000 * 20,000 0 ---

John D. Ellis 5,000 5,000 10,000 * 10,000 0 ---

W. Bruce Erickson 6,200 6,200 12,400 * 12,400 0 ---

John C. Feltl(14) 0 11,333 11,333 * 11,333 0 ---

John E. Feltl(14) 20,000 84,249 104,249 1.5% 104,249 0 ---

Christopher Francis(14) 0 385 385 * 385 0 ---

W. Franson TTEE U/W Franciscus 8,000 8,000 16,000 * 16,000 0 ---
Marital Trust
</TABLE>

11
<PAGE>

Wallace & Irene Franson TTEE 3,000 3,000 6,000 * 6,000 0 --
Franson W. Living Trust

David M. & Shelley R. Frazee(4) 15,945 2,000 17,945 * 4,000 13,945 *

Gregory S. & Colette I. Furness(5) 121,700 1,000 122,700 1.78% 2,000 120,700 1.39%

David Garcia(14) 0 2,000 2,000 * 2,000 0 --

James Scott Garner TTEE Garner Living 2,500 2,500 5,000 * 5,000 0 --
Trust

Michael Garvis(14) 0 800 800 * 800 0 --

Doug Gellerman IRA 1,000 1,000 2,000 * 2,000 0 --

Melvin & Irlene Getzler TTEE Getzler 4,000 4,000 8,000 * 8,000 0 --
Living Trust

M. Karen Gilles 10,000 10,000 20,000 * 20,000 0 --

Harry A. Goldenberg 5,000 5,000 10,000 * 10,000 0 --

Dennis D. Gonyea 10,000 10,000 20,000 * 20,000 0 --

Avron L. & Bari W. Gordon 3,000 3,000 6,000 * 6,000 0 --

Kenneth L. Green 10,000 10,000 20,000 * 20,000 0 --

Melita F. Grunow 8,000 8,000 16,000 * 16,000 0 --

William C. Grunow 8,000 8,000 16,000 * 16,000 0 --

Mark Hagen(14) 0 800 800 * 800 0 --

Sandra J. Hale 5,000 5,000 10,000 * 10,000 0 --

Halls Furniture Pension Plan 1,500 1,500 3,000 * 3,000 0 --

Dennis J. Hanish(14) 10,000 14,765 24,765 * 24,765 0 --

Harry L. Marriott Trust 5,000 5,000 10,000 * 10,000 0 --

Adele C. Heller TTEE Adele C. Heller 1,200 1,200 2,400 * 2,400 0 --
Intervivos Trust

Henrienzo Inc. Profit Sharing Plan 2,400 2,400 4,800 * 4,800 0 --

Kong Her(14) 0 1,600 1,600 * 1,600 0 --

Lawrence Hertzog TTEE Lawrence 4,700 4,700 9,400 * 9,400 0 --
Hertzog Trust

Brian Hessig(14) 0 310 310 * 310 0 --

James B. Hickey, Jr.(6) 17,500 5,000 22,500 * 10,000 12,500 *

Richard A. Hoel(7) 10,000 10,000 20,000 * 20,000 0 --

Russell G. Holman 4,000 4,000 8,000 * 8,000 0 --

Brian Hutton IRA 2,600 2,600 5,200 * 5,200 0 --

Industricorp & Co., Inc. FBO Twin 40,000 40,000 80,000 1.17% 80,000 0 --
City Carpenters
</TABLE>

12
<PAGE>

John R. & Billie S. Jordon 8,000 8,000 16,000 * 16,000 0 --

Seth N. Kahn 3,100 3,100 6,200 * 6,200 0 --

Thomas Kangas(14) 0 500 500 * 500 0 --

Thomas M. Kelleher 7,700 7,700 15,400 * 15,400 0 --

Michael Kelly(14) 0 300 300 * 300 0 --

Marla C. Kennedy 5,000 5,000 10,000 * 10,000 0 --

William R. Kennedy 5,000 5,000 10,000 * 10,000 0 --

Pat Kenney IRA 1,600 1,600 3,200 * 3,200 0 --

E. Robert Kinney 5,000 5,000 10,000 * 10,000 0 --

Margaret Velie Kinney 5,000 5,000 10,000 * 10,000 0 --

Gerald M. Kirke 30,769 30,769 61,538 * 61,538 0 --

Paul H. Klauerkamp 5,000 5,000 10,000 * 10,000 0 --

Gary S. Kohler 10,000 10,000 20,000 * 20,000 0 --

William W. Koop III(14) 10,000 10,500 20,500 * 20,500 0 --

John B. & Teri E. Kruljac 10,000 10,000 20,000 * 20,000 0 --

Thomas Kurz(14) 0 400 400 * 400 0 --

David J. Larkin 4,615 4,615 9,230 * 9,230 0 --

H. Lasker TTEE Lasker Family Living 2,200 2,200 4,400 * 4,400 0 --
Trust

H. Lasker TTEE Lasker Family Trust 4,500 4,500 9,000 * 9,000 0 --

James H. Lehr 6,000 6,000 12,000 * 12,000 0 --

Ilo E. Leppik 30,000 30,000 60,000 * 60,000 0 --

Gary N. Levenstein and Lisa A. 4,500 4,500 9,000 * 9,000 0 --
Levenstein TT Levenstein Revocable
Trust

Martin Levenstein IRA 1,200 1,200 2,400 * 2,400 0 --

Lee A. Levine 10,000 10,000 20,000 * 20,000 0 --

Loveridge, Inc. 2,500 2,500 5,000 * 5,000 0 --

Mac W. Lutz III 7,692 7,692 15,384 * 15,384 0 --

Richard & Erin Mandel TTEES 1,200 1,200 2,400 * 2,400 0 --
Mandel Family Trust

John P. Maney 3,846 3,846 7,692 * 7,692 0 --

Craig A. Mataczynski 4,600 4,600 9,200 * 9,200 0 --

MB Partnership 5,000 5,000 10,000 * 10,000 0 --

James McCain 2,500 2,500 5,000 * 5,000 0 --
</TABLE>

13
<PAGE>

John W. & Lillian R. McCain TTEE John 2,500 2,500 5,000 * 5,000 0 --
W. & Lillian R. McCain Rev Trust

McCullough Family Trust 67,385 67,385 134,770 1.96% 134,770 0 --

Lawrence I. McCullough 10,000 10,000 20,000 * 20,000 0 --

Robert F. McCullough Jr. 23,100 23,100 46,200 * 46,200 0 --

Thomas R. McGuire 6,000 6,000 12,000 * 12,000 0 --

David Metz(14) 0 800 800 * 800 0 --

Miller Family Trust 3,750 3,750 7,500 * 7,500 0 --

Jay D. Miller(8) 90,900 1,000 91,900 1.34% 2,000 89,900 1.03%

Jon L. Miller 3,076 3,076 6,152 * 6,152 0 --

Steven M. Miller 1,000 1,000 2,000 * 2,000 0 --

Montan Prod. Profit Sharing Plan 1,500 1,500 3,000 * 3,000 0 --

Christopher & Barbara Montan TTEE 8,000 8,000 16,000 * 16,000 0 --
Montan Living Trust

Jess S. & Palma S. Morgan TTEE 33,000 33,000 66,000 * 66,000 0 --
Morgan Living Trust

Lisa Mottola TTEE Lisa Mottola 19,000 19,000 38,000 * 38,000 0 --
Living Trust

Lisa Mottola IRA 2,000 2,000 4,000 * 4,000 0 --

Morgan Profit Sharing Plan 37,400 37,400 74,800 1.19% 74,800 0 --

Mary Moore TTEE Mary Moore Trust 9,500 9,500 19,000 * 19,000 0 --

Mary Moore TTEE Mary Moore Trust 5,000 5,000 10,000 * 10,000 0 --

Phil C. Murray 4,615 4,615 9,230 * 9,230 0 --

C. Robert Nelson(14) 0 1,927 1,927 * 1,927 0 --

Carl F. Nelson(14) 0 19 19 * 19 0 --

Carl R. & Raun L. Nelson 7,692 7,692 15,384 * 15,384 0 --

Clement A. Nelson 7,493 7,493 14,986 * 14,986 0 --

Constance H. Nelson TTEE 6,500 6,500 13,000 * 13,000 0 --
Constance H. Nelson Living Trust

Constance Nelson KEOGH Plan 2,500 2,500 5,000 * 5,000 0 --

David O Nelson & Yvonne O'Connor 2,500 2,500 5,000 * 5,000 0 --
Nelson TTEES Nelson Family Trust

David Nelson IRA 1,500 1,500 3,000 * 3,000 0 --

Kathleen Nelson TTEE Kathleen Nelson 8,000 8,000 16,000 * 16,000 0 --
Trust
</TABLE>

14
<PAGE>

Tracy Newman TTEE Tracy Newman Trust 5,300 5,300 10,600 * 10,600 0 -

Dennis Nielsen(14) 0 750 750 * 750 0 -

Dennis E. & Susan J. Nielsen(14) 3,000 3,000 6,000 * 6,000 0 -

John Nielsen(14) 0 600 600 * 600 0 -

Mia M.J. Nijssen 8,000 8,000 16,000 * 16,000 0 -

David Niven Jr. TTEE David Niven Jr. 9,500 9,500 19,000 * 19,000 0 -
Trust

Northwest Anesthesia, P.A. Profit 12,500 12,500 25,000 * 25,000 0 -
Sharing Plan FBO James Gayes

Robert & Carolyn Odegard 5,000 5,000 10,000 * 10,000 0 -

Joseph Ira Overholt 8,000 8,000 16,000 * 16,000 0 -

Jack Palance TTEE Jack Palance 10,000 10,000 20,000 * 20,000 0 -
Revocable Trust

Mary K. T. Parrish TTEE Parrish 2,700 2,700 5,400 * 5,400 0 -
Living Trust

Kathleen Parrish & Jess M. Morgan 1,500 1,500 3,000 * 3,000 0 -
TTEE U/W Parrish Credit Shelter Trust

Perkins Capital Management, Inc., 10,000 5,000 15,000 * 10,000 5,000 -
Profit Sharing Plan & Trust(9)

John G. Peterson 10,000 10,000 20,000 * 20,000 0 -

Wolfgang Petersen & Maria Petersen 18,500 18,500 37,000 * 37,000 0 -
TTEE W/M Petersen Trust

Thomas Pierce(14) 0 11,633 11,633 * 11,633 0 -

Douglas M. Pihl(10) 227,472 472 227,944 3.25% 944 227,000 2.57%

Jo Pihl(14) 750 39,380 40,130 * 39,380 750 *

Darrell E. Powell 8,000 8,000 16,000 * 16,000 0 -

Pyramid Trading Limited Partnership 84,000 84,000 168,000 2.44% 168,000 0 -

Bernard Rappa 4,000 4,000 8,000 * 8,000 0 -

Marshal Raskind & Lisa Raskind 1,500 1,500 3,000 * 3,000 0 -

Realty Center, Inc. P/S Trust FBO 7,700 7,700 15,400 * 15,400 0 -
Thomas A. Reis

Wallace D. Franson & Linda Ronstadt 20,000 20,000 40,000 * 40,000 0 -
TTEE The Normal Trust

John F. Rooney 7,250 7,250 14,500 * 14,500 0 -

Meta Rosenber TTEE Meta Rosenber Trust 4,600 4,600 9,200 * 9,200 0 -
</TABLE>

15
<PAGE>

Barney M. Rosenzweig IRA 7,000 7,000 14,000 * 14,000 0 -

Paul M. Russo 100,000 100,000 200,000 2.90% 200,000 0 -

John V. Ryden(14) 10,000 12,265 22,265 * 22,265 0 -

Robert C. & Michaelene M. Samec(11) 30,100 5,000 35,100 * 10,000 25,100 *

Joseph M. Sand 2,000 2,000 4,000 * 4,000 0 -

Mark J. Sand 3,000 3,000 6,000 * 6,000 0 -

Gordon J. Sanders(14) 0 1,800 1,800 * 1,800 0 -

Michael A. & Nancy C. Scherer 6,153 6,153 12,306 * 12,306 0 -

Shirle Mae Draeger and Wesley H. 7,700 7,700 15,400 * 15,400 0 -
Draeger Revocable Living Trust

Daniel M. Selznick TTEE Daniel M. 1,500 1,500 3,000 * 3,000 0 -
Selznick Trust

Sherwood Equity 7,600 7,600 15,200 * 15,200 0 -

Phillip Smith(14) 0 1,231 1,231 * 1,231 0 -

Robert E. & Aamanda J. Spangler Trust 6,153 6,153 12,306 * 12,306 0 -

H. Stark & R. Stark TTEE Stark Family 3,000 3,000 6,000 * 6,000 0 -
Trust

Rod Steiger TTEE Buttons Trust 6,400 6,400 12,800 * 12,800 0 -

Stevens C. George Jr. TTEE Stevens C. 13,500 13,500 27,000 * 27,000 0 -
George Jr. Trust

Stephen M. Brzica Trust 15,000 15,000 30,000 * 30,000 0 -

Strickland Family Limited Partnership 20,000 20,000 40,000 * 40,000 0 -

Scott E. & Mary T. Strickland 10,000 10,000 20,000 * 20,000 0 -

Allan Strunc 10,000 10,000 20,000 * 20,000 0 -

Elizabeth Taylor Cosmetics Co. 12,500 12,500 25,000 * 25,000 0 -

George Van Dyke Tiers 3,000 3,000 6,000 * 6,000 0 -

Susan Tyssee TTEE Susan Tyssee Trust 2,000 2,000 4,000 * 4,000 0 -

U.S. Bank Trust National Association 10,000 10,000 20,000 * 20,000 0 -
FBO Dennis J. Hanish SEP IRA

U.S. Bank Trust National Association 10,000 10,000 20,000 * 20,000 0 -
FBO Harry L. Marriott SEP IRA

U.S. Bank Trust National Association 3,000 3,000 6,000 * 6,000 0 -
FBO Ilo E. Leppik IRA
</TABLE>

16
<PAGE>

U.S. Bank Trust National Association 10,000 10,000 20,000 * 20,000 0 -
FBO Dr. Khalid Mahmud IRA

U.S. Bank Trust National Association 3,000 3,000 6,000 * 6,000 0 -
FBO Kristine W. Leudesdorf IRA

U.S. Bank Trust National Association 3,000 3,000 6,000 * 6,000 0 -
FBO Margaret W. Leppik IRA

USB Piper Jaffray as Custodian FBO 10,000 10,000 20,000 * 20,000 0 -
Bradley A. Erickson IRA

USB Piper Jaffray as Custodian FBO 12,500 12,500 25,000 * 25,000 0 -
Harold Roitenberg IRA

USB Piper Jaffray as Custodian FBO 5,000 5,000 10,000 * 10,000 0 -
Mark Halsten IRA

USB Piper Jaffray as Custodian FBO 10,000 10,000 20,000 * 20,000 0 -
Richard C. Perkins IRA

Michael W. & Ellen I. Vannier(12) 18,000 3,000 21,000 * 6,000 15,000 *

Joseph F. Walsh TTEE Walsh Living 25,000 25,000 50,000 * 50,000 0 -
Trust

Michael Wang(14) 0 1,000 1,000 * 1,000 0 -

Sven A. Wehrwein(13) 19,000 1,500 20,500 * 3,000 17,500 *

Shawn P. Weinand 10,000 10,000 20,000 * 20,000 0 -

G. Weiss TTEE Weiss Living Trust #2 1,300 1,300 2,600 * 2,600 0 -

Gloria Weiss IRA 3,400 3,400 6,800 * 6,800 0 -

Donna L. Welsh 7,700 7,700 15,400 * 15,400 0 -

Dave M. Westrum 10,000 10,000 20,000 * 20,000 0 -

Brad Williams(14) 0 800 800 * 800 0 -

Edwin James Wilmot 3,000 3,000 6,000 * 6,000 0 -

Scott A. Winton 3,000 3,000 6,000 * 6,000 0 -

Zoller Children Partnership 2,500 2,500 5,000 * 5,000 0 -

Eugenia Zukerman 1,800 1,800 3,600 * 3,600 0 -

TOTAL 2,177,395 1,813,651 3,991,046 3,463,651
</TABLE>

____________________________

17
<PAGE>

* Less than one percent.

(1) Each person has sole voting and sole dispositive power with respect to all
outstanding shares, except as noted.

(2) Excludes shares underlying warrants.

(3) Based on 6,791,807 shares outstanding at September 30, 2000, and 8,605,458
shares outstanding after the exercise of warrants. Each figure showing the
percentage of outstanding shares owned beneficially has been calculated by
treating as outstanding and owned the shares which could be purchased by
the indicated person within 60 days upon the exercise of stock options and
warrants (including the warrants).

(4) Mr. Frazee is our Vice President - Engineering. Includes 14,000 shares
that Mr. Frazee has the right to acquire within 60 days upon the exercise
of stock options and warrants.

(5) Mr. Furness is our Chief Financial Officer and Vice President Finance.
Includes 96,700 shares that Mr. Furness has the right to acquire within 60
days upon exercise of stock options and warrants.

(6) Mr. Hickey is a director of our company. Includes 17,500 shares that Mr.
Hickey has the right to acquire within 60 days upon exercise of stock
options and warrants.

(7) Mr. Hoel is a shareholder of Winthrop & Weinstine, P.A., a law firm which
provides us with legal services.

(8) Mr. Miller is our General Manager and Vice President - Business
Development. Includes 90,400 shares that Mr. Miller has the right to
acquire within 60 days upon exercise of stock options and warrants.

(9) Does not include shares beneficially owned by Mr. Richard W. Perkins, one
of our directors and the controlling shareholder of Perkins Capital
Management, Inc. ("PCM"), a registered investment advisor. Specifically,
the ownership does not include 5,250 shares held by the Perkins Foundation,
67,250 shares held by various other trusts of which Mr. Perkins is the sole
trustee, and 33,500 shares Mr. Perkins has the right to purchase within 60
days upon the exercise of stock options and warrants. Does not include
900,575 shares held for the account of clients of PCM, for which beneficial
ownership is disclaimed by PCM. PCM has sole investment power with regard
to all such shares and sole voting power over 12,000 of such shares. Also
excludes 253,500 shares that PCM has the right to acquire upon exercise of
stock warrants.

(10) Mr. Pihl is a director and our Chairman of the Board. Includes 215,472
shares that Mr. Pihl has the right to acquire within 60 days upon the
exercise of stock options and warrants. Does not include 750 shares held by
Mr. Pihl's spouse.

(11) Mr. Samec is our Vice President - Regulatory Affairs and Quality Assurance.
Includes 28,600 shares that Mr. Samec has the right to acquire upon the
shares of stock options and warrants.

(12) Dr. Vannier is a director of our company. Includes 18,000 shares that Dr.
Vannier has the right to acquire within 60 days upon the exercise of stock
options and warrants.

(13) Mr. Wehrwein is a director of our company. Includes 19,000 shares that Mr.
Wehrwein has the right to acquire within 60 days upon the exercise of stock
options and warrants.

(14) Registered representative or employee of R.J. Steichen and transferee of a
portion of the placement agent warrant.

18
<PAGE>

PLAN OF DISTRIBUTION

We are registering the common stock covered by this prospectus for the
selling shareholders pursuant to registration rights granted to the selling
shareholders. The selling shareholders have indicated that they are acting
independently from us in determining the manner and extent of sales of the
shares of our common stock. These shares may be sold or distributed from time to
time by the selling shareholders, by their donees, pledgees and transferees or
by their other successors in interest. Such sales may be made in one or more
types of transactions (which may include block transactions) on the Nasdaq
SmallCap Market, in negotiated transactions, through put or call options
transactions relating to the shares, through short sales of shares, hedging
transactions, or a combination of such methods of sale, at market prices
prevailing at the time of sale, or at negotiated prices. Such transactions may
or may not involve brokers or dealers. Sales of shares in the Nasdaq SmallCap
Stock Market involving brokers or dealers may be by means of one or more of the
following transactions:

. in a block trade in which a broker or dealer will attempt to sell the
shares as agent but may position and resell a portion of the block as
principal to facilitate the transaction;

. in transactions in which brokers, dealers or underwriters purchase the
shares as principal and resell the shares for their own accounts
pursuant to this prospectus; and

. in ordinary brokers' transactions and transactions in which the broker
solicits purchasers.

The selling shareholders have advised us that they have made no
arrangements or agreements with any underwriters, brokers or dealers regarding
the resale of the common stock prior to the effective date of this prospectus.
The selling shareholders may pay commissions or allow discounts to any brokers
or dealers participating in the resale of the common stock, which commissions or
discounts may be less than or in excess of the customary rates of such brokers
or dealers for similar transactions.

We have agreed to pay the fees and expenses of registering the common
stock, including the reasonable fees and disbursements of persons retained by
us; however, we will not pay the commissions and discounts of underwriters,
dealers or agents.

The selling shareholders also may sell these shares in accordance with Rule
144 under the Securities Act of 1933.

The participating selling shareholders and any underwriters, brokers or
dealers engaged by them may be deemed underwriters, and any profits on sales of
the common stock by them and any discounts, commissions or concessions received
by any selling stockholder or underwriter, broker or dealer may be deemed to be
underwriting discounts or commissions under the Securities Act of 1933.

If the selling stockholder notifies us that a material arrangement has been
entered into with an underwriter, broker or dealer for the sale of the common
stock through a secondary distribution or a purchase by an underwriter, broker
or dealer, a supplemented prospectus will be filed, if required, disclosing such
of the following information as we believe is appropriate:

. the name of each such selling stockholder and of the participating
underwriter, broker or dealer;

. the number of shares of common stock involved;

. the price at which such common stock was sold;

. the commissions paid or discounts or concessions allowed to such
underwriter, broker or dealer;

. where applicable, that such broker or dealer did not conduct any
investigation to verify the information set out or incorporated by
reference in the prospectus; and

19
<PAGE>

. other facts material to the transaction.

We have agreed to indemnify the selling shareholders against certain
liabilities relating to resale of the common stock under the Securities Act of
1933. Each of the selling shareholders has agreed to indemnify us (and our
officers and directors and any person that controls us) against such liabilities
to the extent resulting from untrue statements or omissions in the prospectus or
registration statement based on written information furnished by the selling
stockholder specifically for use in preparing this prospectus or the
registration statement. The selling shareholders may agree to indemnify any
agent, dealer or broker-dealer that participates in transactions involving sales
of the shares against certain liabilities, including liabilities arising under
the Securities Act of 1933. Insofar as indemnification for liabilities under the
Securities Act of 1933 may be permitted to our directors or officers, or persons
that control us, we have been informed that in the opinion of the SEC such
indemnification is against public policy as expressed in the Securities Act of
1933 and is therefore unenforceable.

Although all of the shares are being registered for public sale, the sale
of any or all of such shares by the selling shareholders may depend on the sale
price of such shares and market conditions generally prevailing at the time. We
are unable to predict the effect which sales of the common stock offered hereby
might have upon our ability to raise further capital.

Because selling shareholders may be deemed to be "underwriters" within the
meaning of the Securities Act of 1933, the selling shareholders will be subject
to the prospectus delivery requirement of the Securities Act of 1933 and the
rules promulgated thereunder. We have informed the selling shareholders that the
anti-manipulative provisions of Regulation M under the Securities Exchange Act
of 1934 may apply to their sales in the market.

In order to comply with certain states' securities laws, if applicable, the
common stock will be sold in these states only through registered or licensed
brokers or dealers. In addition, in certain states, the shares of common stock
may not be sold unless they have been registered or qualified for sale in such
states or an exemption from registration or qualification is available and
complied with.

LEGAL MATTERS

Winthrop & Weinstine, P.A., Minneapolis, Minnesota is giving an opinion on
validity of the shares of common stock being offered by this prospectus. Mr.
Richard Hoel is a shareholder of the firm of Winthrop & Weinstine, P.A., and is
also a selling Stockholder.

EXPERTS

The financial statements incorporated in this Prospectus by reference to
the Annual Report on Form 10-K for the year ended December 31, 1999, have been
so incorporated in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.

WHERE YOU CAN FIND ADDITIONAL INFORMATION

We are subject to the reporting requirements of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), and we file reports, proxy statements
and other information with the Securities and Exchange Commission (the
"Commission"). You may read and copy the reports, proxy statements and other
information that we file at the Commission's public reference facilities at 450
Fifth Street, N.W., Washington, D.C. 20549. You may also obtain copies of such
materials by calling the Commission at 1

20
<PAGE>

(800)-SEC-0330, or by mail from the Public Reference Room at 450 Fifth Street,
N.W., Washington, D.C. 20549. Our filings are also available free of charge at
the Commission's website at http://www.sec.gov.

This Prospectus is part of a Registration Statement on Form S-3 (the
"Registration Statement") which we have filed with the Commission under the
Securities Act of 1933, as amended (the "Securities Act"). This Prospectus omits
certain information contained in the Registration Statement. Copies of the
Registration Statement may be inspected without charge at the offices of the
Commission or obtained at prescribed rates from the Public Reference Section of
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549.

DOCUMENTS WE HAVE INCORPORATED BY REFERENCE

The following documents, which we have filed with the Commission, are
incorporated by reference in this Prospectus:

. our Annual Report on Form 10-K for the fiscal year ended December 31,
1999;

. our proxy statement for the 2000 Annual Meeting of Shareholders;

. our quarterly reports on Form 10-Q for the quarters ended March 31, 2000
and June 30, 2000; and

. the description of our common stock contained in our Registration
Statement on Form 10.

All documents we file in the future pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the offering are also incorporated by reference and are an
important part of this Prospectus. Any statement contained in a document
incorporated by reference in this Prospectus shall be modified or superseded for
purposes of this Prospectus to the extent that a statement contained in this
Prospectus or in any other subsequently filed document which is incorporated by
reference modifies or supersedes such statement.

We will provide without charge to each person to whom this Prospectus is
delivered, upon request, a copy of any or all documents that have been or may be
incorporated by reference in the Prospectus (other than exhibits to such
documents which are not specifically incorporated by reference into such
documents). Your requests should be directed to our Chief Financial Officer at
our principal executive offices at:

3300 Fernbrook Lane N.
Suite 200, Plymouth
Minnesota 55447
Telephone number (952) 915-8000.

INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS

All statements contained in this Prospectus and the documents we
incorporate by reference that are not statements of historical fact are
"forward-looking statements." Sometimes these statements contain words like
"believe," "belief," "plan," "anticipate," "expect," "estimate," "may," "will,"
or similar terms. Forward-looking statements involve known or unknown
uncertainties and other factors that could cause actual results to be materially
different from historical results or from any future results expressed or
implied by the forward-looking statements. The "Risk Factors" section of this
Prospectus, beginning on page 2, summarizes certain of the material risks and
uncertainties that could cause our actual results, performance or achievements
to differ materially from what we have said in this

21
<PAGE>

Prospectus and the documents we incorporate by reference. The Risk Factors apply
to all of our forward-looking statements. Given these uncertainties, you should
not place undue reliance on these forward-looking statements, which speak only
as of the date of this Prospectus. We will not revise these forward-looking
statements to reflect events or circumstances after the date of this Prospectus
or to reflect the occurrence of unanticipated events.

22
<PAGE>

================================================================================

VITAL IMAGES, INC.

3,463,651 Shares of Common Stock
____________________

____________________

PROSPECTUS
____________________

_____________, 2000

================================================================================
<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 14. Other Expenses of Issuance and Distribution

The following table sets forth the estimated expenses to be incurred in
connection with the distribution of the shares of Common Stock offered hereby:

SEC registration fee $ 5,372
Legal fees and expenses 10,000
Accounting fees and expenses 4,000
Printing expenses 4,000
Miscellaneous 628
--------
TOTAL $ 24,000
========

Each amount set forth above, except the SEC registration fee, is
estimated.

Item 15. Indemnification of Directors and Officers

Section 302A.521 of the Minnesota Statutes provides that unless
prohibited or limited by a corporation's articles of incorporation or bylaws,
the Company must indemnify its current and former officers, directors, employees
and agents against expenses (including attorneys' fees), judgments, penalties,
fines and amounts paid in settlement and which were incurred in connection with
actions, suits, or proceedings in which such persons are parties by reason of
the fact that they are or were an officer, director, employee or agent of the
corporation, if they (i) have not been indemnified by another organization, (ii)
acted in good faith, (iii) received no improper personal benefit, (iv) in the
case of a criminal proceeding, had no reasonable cause to believe the conduct
was unlawful, and (v) reasonably believed that the conduct was in the best
interests of the corporation. Section 302A.521 also permits a corporation to
purchase and maintain insurance on behalf of its officers, directors, employees
and agents against any liability which may be asserted against, or incurred by,
such persons in their capacities as officers, directors, employees and agents of
the corporation, whether or not the corporation would have been required to
indemnify the person against the liability under the provisions of such section.

Article VI of the Bylaws of the Company provides that the directors,
officers, committee members, of the Company and other persons shall have the
rights to indemnification to the fullest extent permissible under the provisions
of Chapter 302A of the Minnesota Statutes.

II-1
<PAGE>

Item 16. Exhibits

The following exhibits have been filed as part of this Registration
Statement on Form S-3.

Exhibit No. Description of Exhibit
----------- ----------------------

3.1 Articles of Incorporation of the Company (incorporated by
reference to Exhibit 3.1 to the Company's registration statement
on Form 10 (File No. 0-22229)).

3.2 By-laws of the Company (incorporated by reference to Exhibit 3.2
to the Company's registration statement on Form 10 (File No.
0-22229)).

4.1 Form of common stock Certificate of the Company (incorporated by
reference to Exhibit 4.3 to the Company's registration statement
on Form 10 (File No. 0-22229)).

4.2 Rights Agreement, dated effective as of May 1, 1997 between the
Company and American Stock Transfer and Trust Company, which
includes as Exhibit B the form of Rights Certificate
(incorporated by reference to Exhibit 4.4 to the Company's
registration statement on Form 10 (File No. 0-22229)).

4.3 Certificate of Designation, Preferences and Rights of Series A
Junior Preferred Stock of the Company (incorporated by reference
to Exhibit 4.5 to the Company's registration statement on Form 10
(File No. 0-22229)).

5.1 Opinion of Winthrop & Weinstine, P.A (filed herewith
electronically)

10.1 Form of Distribution Agreement, effective as of May 2, 1997
between Bio-Vascular, Inc. and the Company (incorporated by
reference to Exhibit 10.1 to the Company's registration statement
on Form 10 (File No. 0-22229)).

10.2 Form of Employee Benefits Agreement, effective as of May 2, 1997,
between Bio-Vascular, Inc. and the Company (incorporated by
reference to Exhibit 10.2 to the Company's registration statement
on Form 10 (File No. 0-22229)).

10.3 Form of Tax Sharing Agreement, effective as of May 2, 1997,
between Bio-Vascular, Inc. and the Company (incorporated by
reference to Exhibit 10.3 to the Company's registration statement
on Form 10 (File No. 0-22229)).

10.4 Form of Transition Services Agreement, effective as of May 2,
1997 between Bio-Vascular, Inc. and the Company (incorporated by
reference to Exhibit 10.4 to the Company's registration statement
on Form 10 (File No. 0-22229)).

10.5 Incentive Stock Option Adjustment Plan (incorporated by reference
to Exhibit 10.5 to the Company's registration statement on Form
10 (File No. 0-22229)).

10.6 1990 Stock Option Plan (incorporated by reference to Exhibit 10.6
to the Company's registration statement on Form 10 (File No.
0-22229)).

II-2
<PAGE>

10.7 1992 Stock Option Plan (incorporated by reference to Exhibit 10.7
to the Company's registration statement on Form 10 (File No.
0-22229)).

10.8 1992 Director Stock Option Adjustment Plan (incorporated by
reference to Exhibit 10.8 to the Company's registration
statement on Form 10 (File No. 0-22229)).

10.9 1995 Stock Incentive Adjustment Plan (incorporated by reference
to Exhibit 10.9 to the Company's registration statement on Form
10 (File No. 0-22229)).

10.10 Employee Stock Purchase Plan (incorporated by reference to
Exhibit 10.10 to the Company's registration statement on Form 10
(File No. 0-22229)).

10.11 1997 Stock Option and Incentive Plan (incorporated by reference
to Exhibit 10.11 to the Company's registration statement on
Form 10 (File No. 0-22229)).

10.12 1997 Director Stock Option Plan (incorporated by reference to
Exhibit 10.12 to the Company's registration statement on Form 10
(File No. 0-22229)).

10.13 License Agreement dated August 25, 1995 between the Company and
Paradigm Geophysical Corporation (formerly CogniSeis Development,
Inc.) (incorporated by reference to Exhibit 10.14 to the
Company's registration statement on Form 10 (File No. 0-22229)).

10.14 Lease agreement dated May 14, 1993, as amended April 15, 1997,
between Vital Images, Inc. and Douglas Green IRA Trust
(incorporated by reference to Exhibit 10.15 to the Company's
registration statement on Form 10 (File No. 0-22229)).

10.15 Lease Agreement dated January 31, 1997 between ACKY - 3100 Lake
Limited Partnership and the Company (incorporated by reference to
Exhibit 10.16 to the Company's registration statement on Form 10
(File No. 0-22229)).

10.16 Form of Change in Control Agreement between the Company and
Andrew M. Weiss, Vincent J. Argiro, Ph.D., David A. Davis,
Gregory S. Furness and Jay D. Miller (incorporated by reference
to Exhibit 10.17 to the Company's registration statement on Form
10 (File No. 0-22229)).

10.17 Joint Development Agreement dated August 14, 1996 between the
Company and ATL Ultrasound, Inc.* (incorporated by reference to
Exhibit 10.18 to the Company's registration statement on Form 10
(File No. 0-22229)).

10.18 Sales and Marketing Agreement dated August 14, 1996 between the
Company and ATL Ultrasound, Inc.* (incorporated by reference to
Exhibit 10.19 to the Company's registration statement on Form 10
(File No. 0-22229)).

10.19 Software License Agreement dated August 1, 1997 between the
Company and Duke University (incorporated by reference to Exhibit
10.20 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1997 (File No. 0-22229)).

II-3
<PAGE>

10.20 Severance Agreement dated February 13, 1998 between the Company
and Mr. Weiss (incorporated by reference to Exhibit 10.21 to the
Company's Annual Report on Form 10-K for the year ended December
31, 1997 (File No. 0-22229)).

10.21 Employment Agreement dated February 1, 1998 between the Company
and Douglas M. Pihl (incorporated by reference to Exhibit 10.22
to the Company's Annual Report on Form 10-K for the year ended
December 31, 1997 (File No. 0-22229)).

10.22 Non-qualified Stock Option Agreement dated February 24, 1998
between the Company and Douglas M. Pihl (incorporated by
reference to Exhibit 10.23 to the Company's Annual Report on Form
10-K for the year ended December 31, 1997 (File No. 0-22229)).

10.23 Loan Agreement dated March 19, 1999 between the Company and
Riverside Bank (incorporated by reference to Exhibit 10.24 to the
Company's Form 10-Q for the quarter ended March 31, 1999 (File
No. 0-22229)).

10.24 Promissory Note dated March 19, 1999 between the Company and
Riverside Bank (incorporated by reference to Exhibit 10.25 to the
Company's Form 10-Q for the quarter ended March 31, 1999 (File
No. 0-22229)).

10.25 Commercial Security Agreement dated March 19, 1999 between the
Company and Riverside Bank (incorporated by reference to Exhibit
10.26 to the Company's Form 10-Q for the quarter ended March 31,
1999 (File No. 0-22229)).

10.26 Lease agreement dated October 19, 1999 between St. Paul
Properties, Inc. and the Company (incorporated by reference to
Exhibit 10.27 to the Company's Form 10-Q for the quarter ended
September 30, 1999 (File No. 0-22229)).

23.1 Consent of PricewaterhouseCoopers LLP (filed herewith
electronically).

23.2 Consent of Winthrop & Weinstine, P.A.
(contained in the opinion filed as Exhibit 5.1)

24.1 Powers of Attorney
(contained on the signature page of this Registration Statement)

____________________

Item 17. Undertakings

The undersigned Registrant hereby undertakes:

(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933; (ii) to reflect in the prospectus any
facts or events arising after the effective date of the
Registration Statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate,
represent a

II-4
<PAGE>

fundamental change in the information set forth in the
Registration Statement; (iii) to include any material information
with respect to the plan of distribution not previously disclosed
in the Registration Statement or any material change to such
information in the Registration Statement, provided, however,
that clauses (i) and (ii) do not apply if the information
required to be included in a post-effective amendment by such
clauses is contained in periodic reports filed with or furnished
to the Commission by the Registrant pursuant to Section 13 or
Section 15(d) of the Securities Exchange Act of 1934;

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

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

The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in this
Registration Statement 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.

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 the time shall be deemed to be the initial
bona fide offering thereof.

Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to provisions described in Item 15 above, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission, such indemnification is against public policy as
expressed in the 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 covered hereby, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.

II-5
<PAGE>

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-3 and has duly caused this amendment to
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Plymouth, State of Minnesota, on November 3,
2000.

VITAL IMAGES, INC.

/s/ Gregory S. Furness
----------------------
Gregory S. Furness
Chief Financial Officer

Each person whose signature appears below hereby constitutes and appoints
Albert Emola and Gregory S. Furness, or either of them, such person's true and
lawful attorney-in-fact and agent with full power of substitution and
resubstitution for such person and in such person's name, place and stead, in
any and all capacities, to sign the Registration Statement on Form S-3 of Vital
Images, Inc. and any or all amendments (including post-effective amendments) to
the Registration Statement, and to file the same, with all exhibits hereto 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 and about the premises, as fully to all
intents and purposes as such person might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or either
of them, or their 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 by the following persons in the
capacities and on the dates indicated.

<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Al Emola President, Chief Executive Officer November 3, 2000
------------------------------------- and Director
Al Emola

/s/ Douglas M. Pihl Director and Chairman of the Board November 3, 2000
-------------------------------------
Douglas M. Pihl

/s/ Vincent A. Argiro Director November 3, 2000
-------------------------------------
Vincent A. Argiro, Ph.D.

/s/ James B. Hickey, Jr. Director November 3, 2000
-------------------------------------
James B. Hickey, Jr.

/s/ Richard W. Perkins Director November 3, 2000
-------------------------------------
Richard W. Perkins

/s/ Sven A. Wehrwein Director November 3, 2000
-------------------------------------
Sven A. Wehrwein

/s/ Michael W. Vannier Director November 3, 2000
-------------------------------------
Michael W. Vannier

/s/ Gregory S. Furness Chief Financial Officer, November 3, 2000
------------------------------------- Secretary and Treasurer
Gregory S. Furness (Principal Accounting Officer)
</TABLE>

II-6
<PAGE>

EXHIBIT INDEX

<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit Page
----------- ---------------------- ----
<S> <C> <C>
3.1 Articles of Incorporation of the Company (incorporated by reference to Exhibit
3.1 to the Company's registration statement on Form 10 (File No. 0-22229)).

3.2 By-laws of the Company (incorporated by reference to Exhibit 3.2 to the
Company's registration statement on Form 10 (File No. 0-22229)).

4.1 Form of common stock Certificate of the Company (incorporated by reference to
Exhibit 4.3 to the Company's registration statement on Form 10 (File No.
0-22229)).

4.2 Rights Agreement, dated effective as of May 1, 1997 between the Company and
American Stock Transfer and Trust Company, which includes as Exhibit B the
form of Rights Certificate (incorporated by reference to Exhibit 4.4 to the
Company's registration statement on Form 10 (File No. 0-22229)).

4.3 Certificate of Designation, Preferences and Rights of Series A Junior
Preferred Stock of the Company (incorporated by reference to Exhibit 4.5 to
the Company's registration statement on Form 10 (File No. 0-22229)).

5.1 Opinion of Winthrop & Weinstine, P.A.........................................

10.1 Form of Distribution Agreement, effective as of May 2, 1997 between
Bio-Vascular, Inc. and the Company (incorporated by reference to Exhibit 10.1
to the Company's registration statement on Form 10 (File No. 0-22229)).

10.2 Form of Employee Benefits Agreement, effective as of May 2, 1997, between
Bio-Vascular, Inc. and the Company (incorporated by reference to Exhibit 10.2
to the Company's registration statement on Form 10 (File No. 0-22229)).

10.3 Form of Tax Sharing Agreement, effective as of May 2, 1997, between
Bio-Vascular, Inc. and the Company (incorporated by reference to Exhibit 10.3
to the Company's registration statement on Form 10 (File No. 0-22229)).

10.4 Form of Transition Services Agreement, effective as of May 2, 1997 between
Bio-Vascular, Inc. and the Company (incorporated by reference to Exhibit 10.4
to the Company's registration statement on Form 10 (File No. 0-22229)).

10.5 Incentive Stock Option Adjustment Plan (incorporated by reference to Exhibit
10.5 to the Company's registration statement on Form 10 (File No. 0-22229)).

10.6 1990 Stock Option Plan (incorporated by reference to Exhibit 10.6 to the
Company's registration statement on Form 10 (File No. 0-22229)).

10.7 1992 Stock Option Plan (incorporated by reference to Exhibit 10.7 to the
Company's registration statement on Form 10 (File No. 0-22229)).
</TABLE>
<PAGE>

<TABLE>
<S> <C>
10.8 1992 Director Stock Option Adjustment Plan (incorporated by reference to
Exhibit 10.8 to the Company's registration statement on Form 10 (File No.
0-22229)).

10.9 1995 Stock Incentive Adjustment Plan (incorporated by reference to Exhibit
10.9 to the Company's registration statement on Form 10 (File No. 0-22229)).

10.10 Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.10 to
the Company's registration statement on Form 10 (File No. 0-22229)).

10.11 1997 Stock Option and Incentive Plan (incorporated by reference to Exhibit
10.11 to the Company's registration statement on Form 10 (File No. 0-22229)).

10.12 1997 Director Stock Option Plan (incorporated by reference to Exhibit 10.12 to
the Company's registration statement on Form 10 (File No. 0-22229)).

10.13 License Agreement dated August 25, 1995 between the Company and Paradigm
Geophysical Corporation (formerly CogniSeis Development, Inc.) (incorporated
by reference to Exhibit 10.14 to the Company's registration statement on Form
10 (File No. 0-22229)).

10.14 Lease agreement dated May 14, 1993, as amended April 15, 1997, between Vital
Images, Inc. and Douglas Green IRA Trust (incorporated by reference to Exhibit
10.15 to the Company's registration statement on Form 10 (File No. 0-22229)).

10.15 Lease Agreement dated January 31, 1997 between ACKY - 3100 Lake Limited
Partnership and the Company (incorporated by reference to Exhibit 10.16 to the
Company's registration statement on Form 10 (File No. 0-22229)).

10.16 Form of Change in Control Agreement between the Company and Andrew M. Weiss,
Vincent J. Argiro, Ph.D., David A. Davis, Gregory S. Furness and Jay D. Miller
(incorporated by reference to Exhibit 10.17 to the Company's registration
statement on Form 10 (File No. 0-22229)).

10.17 Joint Development Agreement dated August 14, 1996 between the Company and ATL
Ultrasound, Inc.* (incorporated by reference to Exhibit 10.18 to the Company's
registration statement on Form 10 (File No. 0-22229)).

10.18 Sales and Marketing Agreement dated August 14, 1996 between the Company and
ATL Ultrasound, Inc.* (incorporated by reference to Exhibit 10.19 to the
Company's registration statement on Form 10 (File No. 0-22229)).

10.19 Software License Agreement dated August 1, 1997 between the Company and Duke
University (incorporated by reference to Exhibit 10.20 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1997 (File No. 0-22229)).
</TABLE>
<PAGE>

<TABLE>
<S> <C>
10.20 Severance Agreement dated February 13, 1998 between the Company and Mr. Weiss
(incorporated by reference to Exhibit 10.21 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1997 (File No. 0-22229)).

10.21 Employment Agreement dated February 1, 1998 between the Company and Douglas M.
Pihl (incorporated by reference to Exhibit 10.22 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1997 (File No. 0-22229)).

10.22 Non-qualified Stock Option Agreement dated February 24, 1998 between the
Company and Douglas M. Pihl (incorporated by reference to Exhibit 10.23 to the
Company's Annual Report on Form 10-K for the year ended December 31, 1997
(File No. 0-22229)).

10.23 Loan Agreement dated March 19, 1999 between the Company and Riverside Bank
(incorporated by reference to Exhibit 10.24 to the Company's Form 10-Q for the
quarter ended March 31, 1999 (File No. 0-22229)).

10.24 Promissory Note dated March 19, 1999 between the Company and Riverside Bank
(incorporated by reference to Exhibit 10.25 to the Company's Form 10-Q for the
quarter ended March 31, 1999 (File No. 0-22229)).

10.25 Commercial Security Agreement dated March 19, 1999 between the Company and
Riverside Bank (incorporated by reference to Exhibit 10.26 to the Company's
Form 10-Q for the quarter ended March 31, 1999 (File No. 0-22229)).

10.26 Lease agreement dated October 19, 1999 between St. Paul Properties, Inc. and
the Company (incorporated by reference to Exhibit 10.27 to the Company's Form
10-Q for the quarter ended September 30, 1999 (File No. 0-22229)).

23.1 Consent of PricewaterhouseCoopers LLP........................................

23.2 Consent of Winthrop & Weinstine, P.A.
(contained in the opinion filed as Exhibit 5.1)

24.1 Powers of Attorney
(contained on the signature page of this Registration Statement)
</TABLE>

* Portions of such exhibit are subject to a request for confidential
treatment filed with the Commission by the Registrant.