VOXEL /CA/, 424B3, 1996-08-06

VOXEL /CA/
424B3, 1996-08-06
ELECTROMEDICAL & ELECTROTHERAPEUTIC APPARATUS

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<PAGE> 1
PROSPECTUS This filing is made pursuant
to Rule 424(b)(3) under
2,600,000 SHARES the Securities Act of
1933 in connection with
LOGO Registration No. 333-06051

COMMON STOCK

All of the 2,600,000 shares of common stock offered hereby are being sold
by Voxel (the "Company"). The Company's common stock (the "Common Stock") is
traded on the Nasdaq SmallCap Market under the symbol "VOXL." On July 31, 1996,
the last sale price of the Common Stock was $4.06 per share. See "Price Range of
Common Stock."

The several underwriters (the "Underwriters") have agreed to allocate
$2,000,000 of the shares offered hereby for purchase by The Travelers Insurance
Company and three of its affiliates (the "Travelers Companies") and $70,000 of
the shares offered hereby for purchase by Utah Ventures. The Travelers Companies
and Utah Ventures are current shareholders of the Company. See "Principal
Shareholders."

THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK AND SHOULD BE CONSIDERED
ONLY BY PERSONS WHO CAN AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT.
IN ADDITION, PURCHASERS OF THESE SECURITIES WILL SUFFER
IMMEDIATE AND SUBSTANTIAL DILUTION. SEE "RISK
FACTORS" COMMENCING ON PAGE 6 AND "DILUTION."

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR BY 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>
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
UNDERWRITING
PRICE TO DISCOUNTS PROCEEDS TO
PUBLIC AND COMMISSIONS(1) COMPANY(2)
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share of Common Stock........ $3.50 $0.245 $3.255
- -------------------------------------------------------------------------------------------------
Total(3)......................... $9,100,000 $637,000 $8,463,000
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
</TABLE>

(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended (the "Securities Act"). The Company has also agreed to sell to
Cruttenden Roth Incorporated, the representative (the "Representative") of
the Underwriters, for nominal consideration, warrants to purchase up to
208,000 shares of Common Stock exercisable at a per share price equal to
120% of the Price to Public (the "Representative's Warrants"). See
"Underwriting."

(2) Before deducting expenses payable by the Company estimated to be $350,000
(including the Representative's nonaccountable expense allowance). See
"Underwriting."

(3) The Company has granted to the Underwriters a 45-day option to purchase up
to an aggregate of 390,000 additional shares of Common Stock solely to cover
over-allotments, if any. To the extent that the option is exercised, the
Underwriters will offer the additional shares at the Price to Public shown
above. If all shares subject to the over-allotment option are sold by the
Company, the total Price to Public, Underwriting Discounts and Commissions,
and Proceeds to Company will be $10,465,000, $732,550, and $9,732,450,
respectively. See "Underwriting."

The shares of Common Stock are offered by the Underwriters when, as, and if
delivered to and accepted by the Underwriters, subject to the right to reject
any order in whole or in part and certain other conditions. It is expected that
delivery of such shares will be made at the offices of Cruttenden Roth
Incorporated, Irvine, California or at the facilities of the Depository Trust
Company on or about August 6, 1996.

CRUTTENDEN ROTH
INCORPORATED

THE DATE OF THIS PROSPECTUS IS AUGUST 1, 1996
<PAGE> 2

Voxcam(R) Imager

Voxbox(R) Lightbox Voxfilm(TM) Holographic Film

The Voxcam, Voxbox, and Voxfilm will not be commercially available for at least
four months and may differ in appearance from their depictions above.

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

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 SMALLCAP MARKET. SUCH STABILIZING, IF
COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

IN CONNECTION WITH THE OFFERING, CERTAIN UNDERWRITERS (AND SELLING GROUP
MEMBERS) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON
THE NASDAQ SMALLCAP MARKET IN ACCORDANCE WITH RULE 10B-6A UNDER THE SECURITIES
EXCHANGE ACT OF 1934. SEE "UNDERWRITING."

2
<PAGE> 3

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and the consolidated financial statements appearing elsewhere in
this Prospectus. As used in this Prospectus, the term "Company" refers to
Voxel(TM) and its inactive subsidiary, Holoplex Systems Limited, a United
Kingdom corporation. This Prospectus contains forward-looking statements and
information which involve risks and uncertainties. The Company's actual results
could differ materially from the results anticipated in these forward-looking
statements as a result of certain factors set forth under the caption "Risk
Factors" and elsewhere in this Prospectus.

THE COMPANY

Voxel is engaged in the development and marketing of a proprietary system
(the "Digital Holography System" or the "System") that produces
"three-dimensional X-rays" of the internal structure of the human body. The
System consists of the Voxcam(R) imager, an electro-optical instrument that
holographically images computed tomography ("CT") and magnetic resonance ("MR")
data on film; Voxbox(R) light boxes to view the film; and Voxfilm(TM), special
silver halide film to record the hologram. The proprietary process used by the
Voxcam to encode information makes it possible to record up to 200 or more
cross-sectional images from a CT or MR examination on a single sheet of Voxfilm.
The finished image is called a Voxgram(R). On September 29, 1995, the Company
received clearance from the United States Food and Drug Administration (the
"FDA") to market all three elements of its Digital Holography System.

The Voxgram image is an accurate, three-dimensional holographic replica of
the patient's anatomy which is projected through a six-inch deep volume in front
of the Voxbox. Conventional CT and MR display techniques provide a large number
of individual two-dimensional images, each representing a single cross-sectional
plane through the body. The physician is required either to mentally integrate
those many images or to examine computer generated renderings that simulate the
third dimension. However, these renderings can not and do not display accurate
volumetric information and are to be distinguished from Voxel's true
three-dimensional holographic images.

More than 40 medical centers have studied Voxgrams' clinical utility in
connection with conditions that affect anatomical regions most commonly targeted
by CT and MR examinations -- the head, spine, skeleton, and blood vessels. This
research has yielded more than 120 scientific presentations and papers and five
articles in medical journals. The results of these studies suggest that Voxgrams
provide for more accurate and comprehensive diagnosis of medical conditions and
improve surgical planning. The Company believes that Voxgrams may also save time
in the operating theatre and in the surgical planning process, and may enable
physicians to diagnose conditions that are extremely difficult or impossible to
detect with existing display techniques.

Voxel's principal strategic objective is to make it necessary for
diagnostic imaging sites to offer volumetric holographic images in addition to
cross-sectional images in order to be considered acceptable providers. The
Company's potential domestic market encompasses more than 5,000 hospital and
diagnostic imaging centers which, using more than 9,000 CT and MR scanners,
performed in excess of 26 million examinations in 1994. Each of these sites is a
potential purchaser of the System and each of these patient examinations is a
candidate to be printed on Voxfilm. The Company believes that Japanese
utilization of CT and MR scanners is comparable to that of the United States and
Europe's utilization of CT and MR scanners is growing.

Assimilating Voxel's technology will not require a major change in a
hospital's equipment or procedures. CT and MR data will continue to be collected
in the current format, without any modification in routine physician practice.
Additional scanner time will not be required and the patient's radiation dose
will not be changed. The data will be prepared for holographic printing using a
technique similar to that used to prepare two-dimensional images. After scanning
the patient, the technician will adjust brightness and contrast to get the most
useful images, which will then be printed by the Voxcam.

Voxel believes that its patent applications and granted patents provide a
meaningful proprietary position in all elements of the System including, most
importantly, the Voxfilm. The Company, together with its OEM manufacturing
partners, is completing initial pre-production Systems in preparation for
production of commercial Systems. Initial sales activities are underway,
focusing on institutions with active neurosurgery and/or orthopedic surgery
practices. The Company expects to work closely with its customers to broaden the

3
<PAGE> 4

clinical applications in which Voxgrams will be routinely used and thereby
increase Voxfilm utilization. The Company's objective is to make Digital
Holography(TM) a standard of medical imaging.

The Company's principal executive offices are located at 26081 Merit
Circle, Suite 117, Laguna Hills, California 92653 and its telephone number is
(714) 348-3200. The Company was incorporated in California in 1988.

THE OFFERING

<TABLE>
<S> <C>
Common Stock Offered................................... 2,600,000 shares(1)
Shares of Common Stock Outstanding Before the
Offering............................................. 5,349,198 shares(2)(3)
Shares of Common Stock Outstanding After the
Offering............................................. 7,949,198 shares(1)(2)
Use of Proceeds........................................ Completion of System development,
marketing and sales activities,
financing of revenue growth, and
general corporate purposes. See "Use
of Proceeds."
Nasdaq Symbol.......................................... VOXL
</TABLE>

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

(1) Assumes the Underwriters' over-allotment option is not exercised. See
"Underwriting."

(2) Does not include (i) 358,512 shares of Common Stock reserved for as yet
unissued options under the Company's 1992 Stock Plan and 1994 Executive
Stock Option Plan (collectively, the "Option Plans"), (ii) 353,077 shares of
Common Stock issuable upon exercise of outstanding vested stock options
under the Option Plans at a weighted average exercise price per share of
$1.17, (iii) 153,444 shares of Common Stock issuable upon exercise of
outstanding unvested stock options under the Option Plans at a weighted
average exercise price per share of $2.29, (iv) 18,140 shares of Common
Stock issuable upon exercise of outstanding warrants at an exercise price
per share of $3.09, (v) 70,000 shares of Common Stock issuable upon exercise
of outstanding warrants at an exercise price per share of $2.50 issued in
July 1994 in connection with a private financing (the "Bridge Warrants"),
(vi) 190,000 shares of Common Stock issuable upon exercise of an option to
purchase units, each unit consisting of one share of Common Stock and one
warrant (the "Unit Purchase Option") issued in connection with the Company's
initial public offering at an exercise price per unit of $8.80, (vii)
190,000 shares of Common Stock issuable upon exercise of the warrants
included within the units underlying the Unit Purchase Option at an exercise
price per share of $10.00, (viii) 1,900,000 shares of Common Stock issuable
upon exercise of a like number of outstanding warrants at an exercise price
per share of $6.25 (the "Class A Warrants"), and (ix) 208,000 shares of
Common Stock issuable upon exercise of the Representative's Warrants at an
exercise price per share equal to 120% of the Price to Public set forth on
the cover page of this Prospectus. See "Management -- Stock Option Plans,"
"Debt Financings," "Description of Securities," and "Underwriting."

(3) As of May 15, 1996.

RISK FACTORS

The Common Stock offered hereby involves a high degree of risk, including,
without limitation, risks relating to product development; the Company's lack of
product sales, history of operating losses which are expected to continue until
at least 1997, and potential need for additional funds; the delay until product
introduction; the uncertainty of obtaining patent protection; and the Company's
dependence on a single product system and on others for manufacture. See "Risk
Factors."

4
<PAGE> 5

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

<TABLE>
<CAPTION>
PERIOD FROM
THREE-MONTHS ENDED APRIL 15, 1988
(DATE OF
YEAR ENDED DECEMBER 31, MARCH 31, INCEPTION) TO
------------------------------------------------- ------------------ MARCH 31,
1991 1992 1993 1994 1995 1995 1996 1996
----- ------- ------- ------- ------- ------- ------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA(1)
Costs and expenses
Research and development........... $ 443 $ 699 $ 1,191 $ 2,924 $ 3,619 $ 973 $ 1,005 $ 10,134
General and administrative......... 95 795 1,183 1,484 2,124 413 497 6,496
----- ------- ------- ------- ------- ------- ------- --------
538 1,494 2,374 4,408 5,743 1,386 1,502 16,630
----- ------- ------- ------- ------- ------- ------- --------
Loss from operations............... (538) (1,494) (2,374) (4,408) (5,743) (1,386) (1,502) (16,630)
Interest expense................... (28) (31) (233) (408) (33) (10) (4) (805)
Interest income.................... 52 64 10 59 199 75 41 429
----- ------- ------- ------- ------- ------- ------- ---------
Net loss............................. $(514) $(1,461) $(2,597) $(4,757) $(5,577) $(1,321) $(1,465) $ (17,006)
===== ======= ======= ======= ======= ======= ======= =========
Pro forma net loss(2)................ $(2,420) $(4,481)
======= =======
Net loss per share(2)................ $ (1.33) $ (0.32) $ (0.33)
======= ======= =======
Pro forma net loss per share(2)...... $ (1.18) $ (1.67)
======= =======
Shares used in computing net loss per
share(2)........................... 2,043,842 2,677,788 4,183,355 4,108,794 4,499,303
========= =========
</TABLE>

<TABLE>
<CAPTION>
MARCH 31, 1996
-----------------------
AS
ACTUAL ADJUSTED(3)
-------- ----------
<S> <C> <C>
BALANCE SHEET DATA
Cash, cash equivalents, and short-term investments......................................... $ 2,697 $ 10,810
Working capital............................................................................ 2,346 10,459
Total assets............................................................................... 3,308 11,421
Long-term lease obligation................................................................. 11 11
Deficit accumulated during the development stage........................................... (17,006) (17,006)
Total common shareholders' equity.......................................................... 1,411 9,524
Total shareholders' equity................................................................. 2,911 11,024
</TABLE>

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

(1) The Company is a development-stage business and has generated no operating
revenues.

(2) Computed on the basis described in Note 1 to the Company's Consolidated
Financial Statements.

(3) Gives effect to the issuance of the 2,600,000 shares of Common Stock offered
hereby at an offering price of $3.50 per share and the application of the
net proceeds therefrom. Assumes no exercise of the Underwriters'
over-allotment option. See "Use of Proceeds" and "Capitalization."

5
<PAGE> 6

RISK FACTORS

An investment in the Common Stock described hereby is speculative and
involves a high degree of risk.
Investors should carefully consider the following factors before investing in
the Common Stock. These securities should be considered only by persons who can
afford the loss of their entire investment.

Lack of Product Sales; Operating Losses Expected to Continue Until At Least
1997. The Company is in the development stage and has generated no operating
revenues. To date, the Company has been principally engaged in research and
development, product design work, and evaluation studies. The Company does not
expect to have its first product commercially available for at least four months
from the date hereof. At March 31, 1996, the Company had a deficit accumulated
during the development stage of approximately $17,006,000, and working capital
of approximately $2,346,000. Operating losses have continued to date. The
Company does not anticipate generating meaningful revenue until at least 1997,
if at all, and expects to continue to incur operating losses until at least the
third quarter of 1997 as the Company increases expenditures for product
development, continued United States and international patent prosecution and
enforcement, purchase of inventory, and marketing. There can be no assurance
that the Company will obtain revenues in an amount sufficient to achieve
profitability. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."

No Assurance of Successful Product Development, Commercialization, or
Sales. To achieve profitable operations, the Company, alone or with others, must
successfully develop, introduce, market, and sell products. There can be no
assurance that the Digital Holography System will be successfully developed or,
if developed, will be successfully marketed, that the Company will realize
future revenues, or that the Company will achieve profitability. The Company's
products and operations are in development and are subject to the risks inherent
in the development of medical devices, including unforeseen delays, expenses,
and complications frequently encountered in the development and
commercialization of medical devices, the dependence on and attempts to apply
new and rapidly changing technology, and the competitive environment of the
medical device industry. Many of these events may be beyond the Company's
control, such as unanticipated development requirements and manufacturing
problems. Further, there can be no assurance that the Digital Holography System,
if successfully developed, will attain acceptance by health care providers,
payors, or patients. Any failure to develop successfully, or any delays in the
successful development of, the Digital Holography System will have a material
adverse effect on the Company's business, financial condition, and results of
operations. See "Business."

Dependence on Single Product System. The Company's efforts to date have
focused exclusively on the development of the Digital Holography System. Delays
in the commercialization of the System, or the failure to achieve acceptance
thereof in the marketplace, would have a material adverse effect on the
Company's business, financial condition, and results of operations. The Company
does not contemplate pursuing products other than the Digital Holography System,
in the near or intermediate future.

Need for Additional Financing. The development and commercialization of
medical devices require the expenditure of significant capital. Subsequent to
the Offering, the Company will require additional funding in order to achieve
its operating objectives. The timing of completion of the commercialization of
the Digital Holography System and the extent and timing of commercial acceptance
of the System may increase the Company's requirements for capital. If additional
capital is required, the Company may seek to obtain such additional funds
primarily through additional public or private equity or debt financings. Such
additional financing may result in dilution to current shareholders. There can
be no assurance that such additional financing, if required, can be obtained on
terms acceptable to the Company, if at all. If additional funds are not
available, the Company may be required to curtail significantly or to eliminate
some or all of its manufacturing or marketing programs or to obtain funds
through arrangements with corporate partners or others which may require the
Company to relinquish certain rights to its intellectual property or resulting
products. The Company currently has no established bank credit arrangements. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."

Time Lapse Until Commercial Product Introduction. The Company does not
anticipate that commercial development of the System will be completed for at
least four months. To date, the Digital Holography

6
<PAGE> 7

System has been subject to research testing and will require successful field
testing of pre-production prototypes ("Beta Units") before it can be sold
commercially. The ongoing development and engineering activities with respect to
the Beta Units have required more time than was originally anticipated by the
Company and its primary engineering partner, General Scanning, Inc. This delay
in manufacturing of initial production units has increased the Company's
requirements for capital. The Beta Units will implement significant improvements
over the current laboratory prototypes of the Digital Holography System. Field
testing of the Beta Units is intended to confirm the proper implementation of
those improvements and the complete functionality of the System. There can be no
assurance as to the time required to complete such field testing efforts, or if
they can be successfully completed. The failure to complete this testing
successfully or to introduce the System commercially would have a material
adverse effect on the Company's business, financial condition, and results of
operations. See "Business."

No Assurance of Obtaining Patent Protection and Maintaining Confidentiality
of Proprietary Information. The Company's commercial success will depend in
large part upon its ability to obtain patent protection for the Digital
Holography System, maintain confidentiality of its trade secrets and know-how,
and operate without infringing upon the proprietary rights of third parties. In
1992, the Company filed a patent application relating to numerous aspects of the
Digital Holography System. There can be no assurance that any patent will issue
from this application or that, if issued, such patent will cover all or a
substantial portion of the claims currently set forth in the application.
Patents relating to the Voxbox have been granted in the United States and
certain foreign countries. There can be no assurance that any such patents will
provide the Company with any competitive advantages, will not be challenged by
any third parties, or that such third parties will not design a competitive
product around the patents. In addition, there can be no assurance that any of
the Company's patents would be held valid by a court of law of competent
jurisdiction or, if held valid, that the Company will have sufficient economic
resources to enforce or defend its patent rights. In the event the Company is
found to have infringed upon the patent rights of others, there can be no
assurance that the Company would be able to obtain a license to use any of such
patents.

The Company also relies on its trade secrets and proprietary know-how. The
Company has been, and will continue to be, required to disclose its trade
secrets and proprietary know-how not only to employees and consultants, but also
to potential corporate partners, collaborators, and contract manufacturers.
There can be no assurance that any confidentiality agreements that the Company
may enter into with such persons will not be breached, that the Company would
have adequate remedies for any breach, or that the Company's trade secrets and
proprietary know-how will not otherwise become known or be independently
discovered by competitors. See "Business -- Intellectual Property."

Uncertainty Relating to Third Party Reimbursement. In the United States,
health care providers, such as hospitals and physicians that purchase medical
devices and consumables, such as the Company's products, generally rely on
third-party payors, principally Medicare, Medicaid, health maintenance
organizations, and private health insurance plans to reimburse all or part of
the cost of the procedure in which the medical device or consumable is being
used. In addition, certain health care providers are moving toward a managed
care system in which such providers contract to provide comprehensive health
care for a fixed cost per person. Managed care providers may attempt to control
the cost of health care by authorizing fewer CT and MR examinations. To date, no
health care payor has determined to reimburse the usage costs of the System on a
consistent basis or as a matter of policy. As such, the Company is unable to
predict whether its customers will receive incremental reimbursement in respect
of their use of the System or what changes will be made in the reimbursement
methods utilized by third-party health care payors. Furthermore, the Company
could be adversely affected by changes in reimbursement policies of governmental
or private health care payors, particularly to the extent any such changes
affect reimbursement for procedures in which the Company's products are used.
Failure by physicians, hospitals, and other users of the Company's products to
obtain sufficient reimbursement from health care payors for procedures in which
the Company's products are used or adverse changes in government and private
third-party payors' policies toward reimbursement for such procedures could have
a material adverse effect on the Company's business, financial condition, and
results of operations. See "Business -- Third-Party Reimbursement."

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<PAGE> 8

Dependence on Others for Manufacture. The Company does not have the
capability to internally manufacture the Digital Holography System in accordance
with the FDA's current good manufacturing practice ("GMP") requirements. Medical
devices intended for distribution in the United States must be manufactured in
compliance with those requirements. Accordingly, the Company expects to rely on
third parties to manufacture and assemble the Digital Holography System. There
can be no assurance that those manufacturers will meet either the Company's
requirements for quality, quantity, and timeliness or the GMP requirements. In
the event that the Company is unable to obtain or retain contract manufacturers
that can manufacture its products in compliance with the Company's requirements
or the FDA's GMP requirements, or to obtain manufacturing on commercially
acceptable terms, the Company may not be able to commercialize the Digital
Holography System as planned. See "Business -- Manufacturing" and "-- Government
Regulation."

Continued Regulatory Compliance Required. The preclinical and clinical
testing, manufacture, labeling, distribution, sale, marketing, advertising, and
promotion of medical devices are subject to extensive and rigorous regulation by
United States and foreign government authorities before and after
commercialization. In general, device products for human health are subject to
clearance requirements (which may include clinical testing) by the FDA and
comparable foreign regulatory authorities. Although the Digital Holography
System has received marketing (510(k)) clearance from the FDA as a supplement to
existing two-dimensional displays of CT and MR scan data, the System will
continue to be subject to compliance with applicable federal and state laws and
regulations. If the Company needs to make a modification to the System which
could significantly affect its safety or effectiveness, the Company will be
required to submit a new 510(k) and establish to the FDA's satisfaction that the
modified System is substantially equivalent before marketing the modified
System. Such a process could significantly delay (or prevent) commercialization
of a modified System, because obtaining a finding of substantial equivalence
from the FDA on a timely basis (or at all) could not be assured. If the Company
is not in compliance with federal or state regulatory requirements, the FDA or
the federal government and, in some cases, the state can order a recall, detain
the Company's products, institute proceedings to seize the Company's products,
prohibit marketing, manufacture, distribution, and sales of the Company's
products, and assess civil monetary penalties and impose criminal sanctions
against the Company, its officers, or its employees.

Other regulatory conditions are placed on a product's manufacture and the
quality control procedures in place, such as GMP. Manufacturing facilities are
subject to periodic inspections by the FDA to ensure compliance with GMP
requirements. Other applicable FDA requirements include the medical device
reporting regulations, which require that the Company provide information to the
FDA on deaths or serious injuries alleged to have been associated with the use
of its devices, as well as product malfunctions that would likely cause or
contribute to death or serious injury if the malfunction were to recur. Failure
to ensure compliance with these requirements could result in the Company's
inability to commercialize the Digital Holography System as planned. Also,
because the Voxcam will contain a laser, the Company will be required to comply
and certify compliance with the FDA's performance (safety) standard governing
laser products. See "Business -- Government Regulation."

Financial Exposure to Product Liability Claims and Uninsured Risks. The
Company may be exposed to liability resulting from the commercial use of the
System. Such liability might result from claims made directly by patients,
hospitals, clinics, or other end-users. The Company does not currently have
product liability insurance, and there can be no assurance that the Company will
be able to obtain or afford such insurance, if applied for, or that any
coverage, if obtained, will be adequate to protect the Company against potential
liabilities. A successful product liability claim or series of product liability
claims brought against the Company in excess of, or outside of, its insurance
coverage limits could have a material adverse effect on the Company's business,
financial condition, and results of operations. In addition, any product
liability litigation, regardless of merit or outcome, may divert management's
attention from operation of the business and may have a material adverse effect
on the reputation of the Company and market acceptance of the System.

Intense Competition and Rapid Technology Change. The medical device field
in which the Company is engaged has undergone rapid and significant
technological changes. The Company expects that the technologies associated with
its research and development will continue to develop rapidly. There can be no
assurance that the Company will be able to establish itself in such field or, if
established, that it will be able to maintain a

8
<PAGE> 9

competitive position. Further, there can be no assurance that the development by
others of new or improved products will not make the Company's products less
competitive or obsolete. The Digital Holography System may compete for market
share with currently available methodologies for viewing the results of CT and
MR scans. In addition, competition may arise from products currently in
development, or developed in the future, by other companies. Many of the current
and potential competitors are likely to have substantially greater capital
resources and research and development capabilities and may also have more
extensive experience with CT and MR procedures and technologies than the
Company. Potential purchasers of the System may determine that currently
available display techniques for CT and MR scans are sufficient for making
requisite diagnoses. The comparison of the incremental utility and marginal cost
of the System may also be influenced by future health care legislation and
insurance reimbursement determinations. Finally, a lack of significant physician
acceptance of the Digital Holography System will have a material adverse effect
on the Company. See "Business -- Competition."

Dependence on Key Personnel. The Company is dependent upon the active
participation of its Chief Executive Officer, Dr. Allan M. Wolfe, its Director
of Research and Development, Stephen J. Hart, and other key technical personnel.
The loss to the Company of the services of any of such individuals could have a
material adverse effect on the Company's future operations. The Company is the
sole beneficiary of term life insurance policies, each in the face amount of one
million dollars, covering Dr. Wolfe and Mr. Hart. The Company's success also may
depend on its ability to attract and retain other qualified scientific and
management personnel. The Company competes for such persons with other
companies, academic institutions, government entities, and other organizations,
some of which have substantially greater capital resources and facilities than
the Company. There can be no assurance that the Company will be successful in
recruiting or retaining personnel of the requisite caliber or in adequate
numbers to enable it to conduct its business as proposed. Furthermore, the
Company's expected expansion into activities requiring additional expertise in
manufacturing and marketing will place increased demands on the Company's
resources and management skills. See "Management."

No Sales and Marketing Capability. The Company does not have any experience
in sales, marketing, or distribution. To market the Digital Holography System
directly, the Company must develop a marketing and sales force with technical
expertise and supporting distribution capability. Alternatively, the Company may
seek to obtain the assistance of enterprises with a large distribution system
and a large direct sales force. There can be no assurance that the Company will
be able to establish sales and distribution capabilities or to obtain the
assistance of another enterprise in such efforts. See "Business -- Sales and
Marketing."

Control by Directors, Executive Officers, and Affiliated
Entities. Following completion of the Offering, directors, executive officers,
and affiliated entities of the Company will beneficially own approximately 28.4%
of the Company's outstanding Common Stock. Accordingly, these persons, as a
group, may be able to exert significant influence over the direction of the
Company's affairs and business, including any determination with respect to the
acquisition or disposition of assets by the Company, future issuances of Common
Stock or other securities by the Company, and the election of directors. Such
concentration of ownership may also have the effect of delaying, deferring, or
preventing a change in control of the Company. See "Principal Shareholders."

Dilution. Purchasers of the Common Stock offered hereby will experience
immediate and substantial dilution in the net tangible book value of their
shares. Additional dilution may occur upon the exercise of outstanding warrants
and options. See "Dilution," "Capitalization," "Management -- Stock Option
Plans," "Debt Financings," and "Description of Securities."

Potential Volatility of Stock Price. The price of the Common Stock has
been, and is likely to continue to be, highly volatile. Announcements of
technological innovations or new commercial products by the Company or its
competitors, developments concerning proprietary rights, public concern as to
the safety of medical products, and period-to-period fluctuations in revenues
and financial results may have a significant impact on the Company's business
and on the market price of the Company's securities. In addition, stock markets
in general, and the market for shares of health care stocks in particular, have
experienced extreme price and volume fluctuations in recent years that have
frequently been unrelated to the operating performance of the

9
<PAGE> 10

affected companies. These broad market fluctuations may adversely affect the
market price of the Common Stock. There can be no assurance that the market
price of the Common Stock will not decline below the Offering price or that it
will not experience significant fluctuations in the future, including
fluctuations that are unrelated to the Company's performance. See "Price Range
of Common Stock."

Adverse Consequences Associated with Substantial Shares of Common Stock
Reserved for Issuance. The Company has reserved 1,900,000 shares of Common Stock
for issuance upon exercise (at an exercise price per share of $6.25) of Class A
Warrants, 190,000 shares of Common Stock for issuance upon exercise of the Unit
Purchase Option that was issued in connection with the Company's initial public
offering (the "IPO"), 190,000 shares of Common Stock for issuance upon exercise
of warrants included within the units underlying the Unit Purchase Option, and
18,140 shares of Common Stock issuable upon exercise of warrants at an exercise
price of $3.09. As of May 15, 1996, the Company had granted outstanding options
to purchase an aggregate of 506,521 shares of Common Stock (subject to vesting
requirements in certain cases) at a weighted average exercise price per share of
$1.51 to employees and other individuals under the Option Plans. As of May 15,
1996, the Company has also reserved 70,000 shares of Common Stock for issuance
upon exercise (at an exercise price per share of $2.50) of a like number of
Bridge Warrants. In addition, the Company has reserved an aggregate of 358,512
shares of Common Stock for issuance upon exercise of options which may be
granted in the future under the Option Plans. Holders of any such warrants and
options are likely to exercise them when, in all likelihood, the Company could
obtain additional capital on terms more favorable than those provided thereby.
Furthermore, such warrants and options may adversely affect the terms on which
the Company could obtain additional capital. Should a significant portion of
such warrants and options be exercised, the resulting increase in the amount of
Common Stock in the public market may have the effect of reducing the per share
market price thereof. See "Management -- Stock Option Plans," "Debt Financings,"
"Description of Securities," and "Shares Eligible for Future Sale."

Substantial Number of Shares Eligible for Future Sale; Potential Expense of
Registration Rights. Approximately 2,170,089 of the Company's outstanding shares
of Common Stock are, and 506,521 shares issuable on exercise of stock options
will be, "restricted securities" and may in the future be sold upon registration
or in compliance with an exemption from registration such as Rule 144 adopted
under the Securities Act. Rule 144 generally provides that beneficial owners of
shares who have held such shares for two years may sell within a three-month
period a number of shares not exceeding the greater of 1% of the total
outstanding shares or the average trading volume of the shares during the four
calendar weeks preceding such sale. In the absence of agreements with the
Representative, holders of substantially all of the outstanding restricted
shares of Common Stock could sell such shares in accordance with Rule 144 at any
time. Pursuant to the terms of the Underwriting Agreement, the Representative
has required that sales of the restricted securities referenced above may not
commence until 180 days from the date of this Prospectus without prior written
consent of the Representative. Future substantial sales of restricted securities
under Rule 144 or otherwise could negatively impact the market price of the
Common Stock. See "Shares Eligible for Future Sale."

In addition, 1,900,000 shares of Common Stock issuable upon exercise of
Class A Warrants, 380,000 shares of Common Stock issuable upon exercise of the
Unit Purchase Option and the related warrants, and 70,000 shares of Common Stock
issuable upon exercise of the Bridge Warrants are included within a registration
statement that the Company has previously filed with the Securities and Exchange
Commission. Subject to maintaining the effectiveness of such registration
statement, all such shares (if issued) may be sold in the public market at any
time. Furthermore, holders of approximately 1,325,000 of the restricted shares
referred to in the preceding paragraph and up to 208,000 shares of Common Stock
issuable upon exercise of the Representative's Warrants have certain demand and
piggyback registration rights which could require the Company to register such
shares. Exercise of these registration rights could involve substantial expense
to the Company. Any substantial sale in the public market of the shares
referenced in this paragraph could negatively impact the market price of the
Common Stock. See "Description of Securities -- Registration Rights."

Potential Adverse Effect of Issuance of Preferred Stock. The Company's
Articles of Incorporation allow the Company to issue up to 10,000,000 shares of
preferred stock, no par value (the "Preferred Stock"),

10
<PAGE> 11

without further shareholder approval and upon such terms and conditions, and
having such rights, preferences, privileges, and restrictions as the Board of
Directors (the "Board") may determine. The rights of the holders of Common Stock
will be subject to, and may be adversely affected by, the rights of holders of
any Preferred Stock that may be issued in the future. In addition, the issuance
of Preferred Stock could have the effect of making it more difficult for a third
party to acquire control of, or of discouraging bids for, the Company. This
could limit the price that certain investors might be willing to pay in the
future for shares of Common Stock. The Company has no present plans to issue any
additional shares of Preferred Stock. See "Description of Securities."

Dividends Not Likely. The Company has not paid any cash dividends on the
Common Stock. For the foreseeable future, it is anticipated that earnings, if
any, that may be generated from the Company's operations will be used to finance
the operations of the Company and that cash dividends will not be paid to
holders of Common Stock. See "Dividend Policy."

Forward Looking Statements. This Prospectus contains forward-looking
statements and information that are based on management's belief and
assumptions, as well as information currently available to management. When used
in this document, the words "anticipate," "estimate," "expect," and similar
expressions are intended to identify forward-looking statements. Although the
Company believes that the expectations reflected in such forward-looking
statements are reasonable, it can give no assurance that such expectations will
prove to be correct. Such statements are subject to certain risks, uncertainties
and assumptions. Should one or more of these risks or uncertainties materialize,
or should the underlying assumptions prove incorrect, actual results may vary
materially from those anticipated, estimated or expected. Among the key factors
that may have a direct bearing on the Company's operating results are
fluctuations in the economy, the degree and nature of competition, acceptance
of, and demand for, the Digital Holography System, and the Company's ability to
successfully complete the development and commercialization of the Digital
Holography System, generate significant revenues from sales of the System,
recruit additional technical and marketing personnel, develop new market
opportunities for the Digital Holography System, and develop and maintain a
sufficient profit margin.

11
<PAGE> 12

DILUTION

As of March 31, 1996, the net tangible book value per share of the
Company's Common Stock was $0.28. "Net tangible book value per share" represents
the amount of the Company's tangible assets, less the amount of its liabilities,
divided by the number of shares of Common Stock outstanding.

After giving effect to the issuance of the 2,600,000 shares of Common Stock
offered hereby at an offering price of $3.50 per share and after deduction of
underwriting discounts and commissions and estimated offering expenses payable
by the Company, and the receipt of the proceeds therefrom and assuming no
exercise of any outstanding stock options or warrants, the net tangible book
value per share of Common Stock as of March 31, 1996 would have been $1.26. This
would result in dilution to the new investors, i.e., the difference between the
purchase price of the shares and the net tangible book value per share after the
Offering, of $2.24 per share. The following table illustrates the per share
dilution:

<TABLE>
<S> <C> <C>
Public offering price per share(1)........................... $3.50
Net tangible book value per share as of March 31, 1996....... $ .28
Increase per share attributable to the sale by the Company of
the shares offered hereby.................................. .98
-----
Net tangible book value per share after the Offering(2)...... 1.26
-----
Dilution of net tangible book value per share to new
investors.................................................. $2.24
=====
</TABLE>

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

(1) Before deducting underwriting discounts and commissions and estimated
offering expenses to be paid by the Company.

(2) Assumes no exercise of the warrants or options to purchase Common Stock that
were outstanding at March 31, 1996. Outstanding options, all of which were
issued under the Option Plans prior to March 31, 1996, cover the purchase of
an aggregate of 506,521 shares at a weighted average exercise price of
$1.51. If these options are exercised, they will be dilutive to the
Company's shareholders, including the new investors. Outstanding warrants
include warrants to purchase an aggregate of 18,140 shares at an exercise
price of $3.09 and Bridge Warrants to purchase 70,000 shares at an exercise
price of $2.50. If these warrants are exercised, they will be dilutive to
the Company's shareholders, including the new investors. Exercise of the
1,900,000 Class A Warrants, the Representative's Warrants, and the Unit
Purchase Option (and the related warrants) will be anti-dilutive to the new
investors.

Giving effect to the exercise of all warrants and options referenced, with
the exception of the anti-dilutive warrants and option in footnote (2) above,
the adjusted net tangible book value of the Common Stock as of March 31, 1996
after the Offering would have been $1.29. This would result in dilution to the
new investors of $2.21.

12
<PAGE> 13

USE OF PROCEEDS

The net proceeds to the Company from the sale of the 2,600,000 shares of
Common Stock offered hereby are estimated to be approximately $8,113,000
($9,361,975 if the Underwriters' over-allotment option is exercised in full), at
an offering price of $3.50 per share and after deducting underwriting discounts
and commissions and estimated offering expenses payable by the Company.

The Company expects to use approximately $2.0 million of such net proceeds
for completion of development of the Digital Holography System, $4.0 million of
such net proceeds for expansion of marketing and sales activities for the System
through 1997, and $2.0 million of such net proceeds to finance revenue growth
and the accompanying increases in inventory and accounts receivable. The
remaining net proceeds will be used for general corporate purposes and working
capital. Pending such uses, the Company intends to invest the net proceeds of
the Offering in government securities and insured, short-term, interest-bearing
investments of varying maturities.

Completion of development of the System encompasses the construction of
additional Beta Units, their successful field testing, and the initiation of
manufacturing of production units. These activities will necessitate
expenditures for Beta Unit parts, engineering design services, field support for
Beta Unit sites, and purchases of tooling. The proceeds allocated to System
completion also are intended to fund the Company's ongoing research, clinical
evaluation, and administrative functions until meaningful revenue is achieved.

Expansion of marketing and sales activities will entail commencement of
advertising, public relations, user training, and customer support efforts, as
well as increases in sales staff headcount, tradeshow attendance, and related
travel expenditures.

Another use of proceeds will be to finance increases in inventory and
accounts receivable. The cash demands of revenue growth will depend upon the
rate of sales growth, the timeliness of customer payments for purchases, the
availability of receivables and inventory financing from third parties, and the
extent to which the Company offers (and customers select) financing arrangements
for the acquisition of Systems other than payment upon delivery. The terms of
the arrangements (including payment timing) between Voxel and any third party
finance company, and the frequency with which the Company offers and customers
select such arrangements, will impact the Company's working capital needs. There
can be no assurance that the Company will be able to offer such third-party
financing, or that potential customers will elect to acquire Systems on such
terms.

The foregoing represents the Company's estimate of the allocation of the
net proceeds of the Offering. Future events, including the problems, delays,
expenses, and complications frequently encountered by development stage
companies, as well as changes in economic, regulatory, or competitive
conditions, or changes in the Company's planned business and the success or lack
thereof, or changes in the Company's product development activities, may require
reallocation of funds or may require the delay, abandonment, or reduction of the
Company's efforts. There can be no assurance that the Company's estimates will
prove accurate, that product introduction efforts will not require considerable
additional expenditures, or that unforeseen expenses will not occur.

13
<PAGE> 14

PRICE RANGE OF COMMON STOCK

The Company's Common Stock, Class A Warrants, and units consisting of one
share of Common Stock and one Class A Warrant (the "Units") have been listed and
traded on the Nasdaq SmallCap Market since the IPO closed on November 1, 1994.
The Common Stock and Class A Warrant components of each Unit are also separately
transferable. According to records of the Company's transfer agent, the Company
had approximately 104 shareholders of record as of June 11, 1996. On July 31,
1996, the closing sales prices for the Company's Common Stock, Class A Warrants,
and Units were $4.06, $1.63, and $5.13, respectively. The following table sets
forth the high and the low sales prices of the Common Stock since November 1,
1994.

<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
1994
Fourth Quarter (From November 1, 1994)..................... $ 9.25 $ 5.69
1995
First Quarter.............................................. 7.00 4.63
Second Quarter............................................. 9.38 6.75
Third Quarter.............................................. 9.00 4.50
Fourth Quarter............................................. 7.00 1.75
1996
First Quarter.............................................. 7.69 2.38
Second Quarter............................................. 8.63 4.88
Third Quarter (Through July 31, 1996)...................... 7.50 4.06
</TABLE>

DIVIDEND POLICY

The Company has not paid cash dividends since inception. The Company
currently intends to retain all of its earnings, if any, for use in its business
and does not anticipate paying any cash dividends in the foreseeable future.

14
<PAGE> 15

CAPITALIZATION

The following table sets forth (a) the capitalization of the Company as of
March 31, 1996 and (b) the capitalization as of such date, as adjusted to
reflect the sale by the Company of the 2,600,000 shares of Common Stock offered
hereby at an offering price of $3.50 per share.

<TABLE>
<CAPTION>
MARCH 31, 1996
------------------------
AS
ACTUAL ADJUSTED(1)
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Long-term portion of capitalized lease obligations.................... $ 11 $ 11
Shareholders' equity:
Convertible Series C preferred stock, no par value,
authorized -- 4,000,000 shares; issued and outstanding
1,666,668(2)........................................................ 1,500 1,500
Common stock, no par value, authorized -- 15,000,000 shares; issued
and outstanding -- 4,956,817 shares (actual), 7,556,817 (as
adjusted)(3)........................................................ 18,447 26,560
Deficit accumulated during the development stage...................... (17,006) (17,006)
Notes receivable from shareholders.................................... (30) (30)
-------- -----------
Total shareholders' equity....................................... 2,911 11,024
-------- -----------
Total capitalization........................................ $ 2,922 $ 11,035
======== =========
</TABLE>

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

(1) Assumes receipt of estimated net proceeds of $8,113,000 after deduction of
underwriting discounts and commissions and estimated offering expenses
payable by the Company. Assumes no exercise of the Underwriters'
over-allotment option.

(2) As of May 15, 1996, all of the remaining 1,666,668 shares of convertible
Series C Preferred Stock had been converted into 384,404 shares of Common
Stock.

(3) Does not include (i) 358,512 shares of Common Stock reserved for as yet
unissued options under the Option Plans, (ii) 350,012 shares of Common Stock
issuable upon exercise of outstanding vested stock options under the Option
Plans at a weighted average exercise price per share of $1.14, (iii) 156,509
shares of Common Stock issuable upon exercise of outstanding unvested stock
options under the Option Plans at a weighted average exercise price per
share of $2.32, (iv) 18,140 shares of Common Stock issuable upon exercise of
outstanding warrants at an exercise price per share of $3.09, (v) 70,000
shares of Common Stock issuable upon exercise of the Bridge Warrants at an
exercise price per share of $2.50, (vi) 190,000 shares of Common Stock
issuable upon exercise of the Unit Purchase Option at an exercise price per
unit of $8.80, (vii) 190,000 shares of Common Stock issuable upon exercise
of the warrants included within the units underlying the Unit Purchase
Option at an exercise price per share of $10.00, (viii) 1,900,000 shares of
Common Stock issuable upon exercise of a like number of outstanding Class A
Warrants, and (ix) 208,000 shares of Common Stock issuable upon exercise of
the Representative's Warrants. See "Management -- Stock Option Plans," "Debt
Financing," "Description of Securities," and "Underwriting."

15
<PAGE> 16

SELECTED CONSOLIDATED FINANCIAL DATA

The selected consolidated financial data set forth below with respect to
the Company's statements of operations for each of the three years in the period
ended December 31, 1995, and with respect to the Company's balance sheets at
December 31, 1994 and 1995 are derived from the Consolidated Financial
Statements which are included elsewhere in this Prospectus and which have been
audited by Ernst & Young LLP, independent auditors, as indicated in their report
included elsewhere in this Prospectus. The statement of operations data for the
year ended December 31, 1991 and 1992 and the balance sheet data at December 31,
1991, 1992, and 1993 are derived from consolidated financial statements audited
by Ernst & Young LLP which are not included herein. The financial data for the
three months ended March 31, 1995 and March 31, 1996 and for the period from
April 15, 1988 (inception) to March 31, 1996 are derived from unaudited
consolidated financial statements included elsewhere in this Prospectus. The
unaudited consolidated financial statements include all adjustments, consisting
only of normal recurring adjustments, that the Company considers necessary for a
fair presentation of the financial position and results of operations for these
periods. The data set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements and the related Notes
thereto included elsewhere in this Prospectus.

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

<TABLE>
<CAPTION>
PERIOD FROM
THREE-MONTHS ENDED APRIL 15, 1988
(DATE
YEAR ENDED DECEMBER 31, MARCH 31, OF INCEPTION)
---------------------------------------------------- ------------------- TO MARCH 31,
1991 1992 1993 1994 1995 1995 1996 1996
----- ------- ------- ------- ------- ------- ------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA(1)
Costs and expenses:
Research and development..... $ 443 $ 699 $ 1,191 $ 2,924 $ 3,619 $ 973 $ 1,005 $ 10,134
General and administrative... 95 795 1,183 1,484 2,124 413 497 6,496
----- ------- ------- ------- ------- ------- ------- --------
538 1,494 2,374 4,408 5,743 1,386 1,502 16,630
----- ------- ------- ------- ------- ------- ------- --------
Loss from operations......... (538) (1,494) (2,374) (4,408) (5,743) (1,386) (1,502) (16,630)
Interest expense............. (28) (31) (233) (408) (33) (10) (4) (805)
Interest income.............. 52 64 10 59 199 75 41 429
----- ------- ------- ------- ------- ------- ------- --------
Net loss....................... $(514) $(1,461) $(2,597) $(4,757) $(5,577) $(1,321) $(1,465) $(17,006)
===== ======= ======= ======= ======= ======= ======= ========
Pro forma net loss(2).......... $(2,420) $(4,481)
======= =======
Net loss per share(2).......... $ (1.33) $ (0.32) $ (0.33)
======= ======= =======
Pro forma net loss per
share(2)..................... $ (1.18) $ (1.67)
======= =======
Shares used in computing net
loss per share(2)............ 2,043,842 2,677,788 4,183,355 4,108,794 4,499,303
========= ========= ========= ========= =========
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------- MARCH 31,
1991 1992 1993 1994 1995 1996
------- ------- ------- ------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Cash, cash equivalents, and short-term investments..... $ 2,386 $ 1,116 $ 160 $ 5,708 $ 4,398 $ 2,697
Working capital (deficit).............................. 2,319 905 (1,924) 5,408 3,822 2,346
Total assets........................................... 2,791 1,648 945 6,419 4,980 3,308
Short-term notes payable............................... -- -- 1,857 -- 105 --
Long-term lease obligation............................. -- 173 168 108 28 11
Deficit accumulated during the development stage....... (1,129) (2,590) (5,187) (9,964) (15,541) (17,006)
Convertible redeemable preferred stock(3).............. 3,799 3,799 3,799 -- -- --
Total common shareholders' equity (deficit)............ (1,085) (2,546) (5,143) 5,984 742 1,411
Total shareholders' equity (deficit)................... (1,085) (2,546) (5,143) 5,984 4,342 2,911
</TABLE>

- ---------------
(1) The Company is a development-stage business and has generated no operating
revenue.

(2) Computed on the basis described in Note 1 to the Consolidated Financial
Statements.

(3) See "Description of Securities -- Preferred Stock."

16
<PAGE> 17

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

Since its inception in 1988, the Company has been engaged in the design,
development, and medical evaluation of a sophisticated system that yields
film-based, hard copy images of the internal structure of the human body. The
Company's Digital Holography System consists of the Voxcam, an electro-optical
instrument that holographically images CT and MR data on film; Voxboxes, light
boxes to view the film; and Voxfilm, special silver halide film to record the
hologram.

The Company has not yet developed products for sale, has not earned
revenues, and has incurred substantial losses since inception. The Company
expects to continue to incur substantial operating losses through at least the
third quarter of 1997 as product development and marketing activities expand.

Certain prerequisites need to be fulfilled prior to initial commercial
sales of the Digital Holography System. One of these prerequisites was
accomplished on September 29, 1995, when the Company received 510(k) clearance
from the FDA to market the Digital Holography System as an adjunct to current
two-dimensional display techniques for diagnostic imaging data. The remaining
prerequisites to initial commercial sales include completion and successful
field testing of Beta Units, manufacturing of production units, and achievement
of market acceptance for the Digital Holography System. There can be no
assurance that, on a timely basis or at all, any or all of the remaining
prerequisites will be satisfied.

The Company currently anticipates that initial production units of the
Digital Holography System will be available for commercial sale no earlier than
the fourth quarter of 1996. The ongoing development and engineering activities
with respect to pre-production prototypes of the Voxcam have required more time
than was originally anticipated by the Company and its primary engineering
partner, General Scanning, Inc. This delay in manufacturing of initial
production units has increased the Company's requirements for capital. See "Risk
Factors -- No Assurance of Successful Product Development, Commercialization, or
Sales" and "-- Time Lapse Until Commercial Product Introduction."

The following discussion and analysis should be read in conjunction with
the Consolidated Financial Statements and Notes thereto appearing elsewhere in
this Prospectus.

RESULTS OF OPERATIONS

Three Months Ended March 31, 1996 and March 31, 1995

The Company had no revenues during the first quarter of 1996 and 1995. Loss
from operations for 1996 increased by 8% to $1,502,000 from $1,386,000 for 1995,
primarily as a consequence of augmented marketing activities. Specific sources
of expenditure growth included increased sales and marketing staff, promotional
materials, and trade show costs. As a result, general and administrative expense
(which includes marketing) rose 20% to $497,000 from $413,000 in 1995. Research
and development expense ("R&D") expense increased 3% to $1,005,000 from $973,000
in 1995. The modest increase was attributable to the offsetting impact of
several factors. Payments to design firms for development and engineering
activities decreased significantly, while parts purchases with respect to
pre-production prototypes of the Voxcam increased equally. Savings in the cost
of operating the clinical research program were offset by an increase in the
resources devoted to the design and manufacture of pre-production units of the
Voxbox. Net loss for 1996 increased by 11% to $1,465,000 from $1,321,000.
Interest expense for 1996 was $4,000 compared to $10,000 in 1995. The decrease
resulted from smaller principal balances on capital lease obligations due to the
maturity of certain capital leases during 1995. Interest income for 1996 was
$41,000 compared to $75,000 in 1995 because a smaller balance of funds was
available for investment in marketable securities.

Years Ended December 31, 1995 and 1994

The Company had no revenues during 1995 and 1994. Loss from operations for
1995 increased by 30% to $5,743,000 from $4,408,000 for 1994. R&D expense
increased by 24% to $3,619,000 from $2,924,000. Payments to design firms for
development and engineering activities (including parts purchases) with respect
to pre-production prototypes of the Voxcam and Voxbox accounted for virtually
all of the increase in R&D

17
<PAGE> 18

costs. General and administrative ("G&A") expense (which includes marketing
activities) increased by 43% to $2,124,000 from $1,484,000. This increase
resulted primarily from an intensified focus on marketing. In preparation for
product introduction, the Company augmented its trade show presence, clinical
exhibit support, and market research activities. Also contributing to the G&A
increase were modestly increased costs of administrative support for the growing
organization (e.g. rent, insurance, and office activities). Net loss for 1995
increased by 17% to $5,577,000 from $4,757,000 in 1994. Net interest income for
1995 was $166,000 compared to net interest expense of $349,000 in 1994. This
difference resulted from interest income on IPO proceeds that were invested in
short-term securities.

Years Ended December 31, 1994 and 1993

The Company had no revenues during 1994 and 1993. Loss from operations for
1994 increased by 86% to $4,408,000 from $2,374,000 for 1993. R&D expense
increased by 146% to $2,924,000 from $1,191,000. This increase was primarily
attributable to costs of design engineering services for development of the
commercial Voxcam and, to a much lesser extent, to increased headcount of
technical employees. G&A expense (which includes marketing activities) increased
by 25% to $1,484,000 from $1,183,000. This increase resulted primarily from (i)
non-cash compensation expense of $117,000 recognized in connection with stock
option grants in 1994 and (ii) increased marketing activity, including support
for the presentation of papers at medical meetings by the Company's research
collaborators. Net loss for 1994 increased by 83% to $4,757,000 from $2,597,000
in 1993. Net interest expense for 1994 was $349,000 compared to $224,000 in
1993. The increase resulted from interest expense on a larger outstanding
principal amount of notes used to fund the Company's operations until closing of
the IPO.

LIQUIDITY AND CAPITAL RESOURCES

The Company has financed its operations primarily through private and
public sales of equity securities and the private placement of debt securities
and, to a far lesser extent, through equipment lease financing. As of March 31,
1996 the Company had raised net proceeds of $9,000,000 from the IPO, $3,799,000
from the sale of convertible redeemable Series A and Series B Preferred Stock,
$3,600,000 from the sale of Series C Preferred Stock, and $4,660,000 from the
sale of debt securities. The Series A and Series B Preferred Stock and
$2,460,000 of the debt (together with accrued interest thereon) were converted
to Common Stock at the closing of the IPO on November 1, 1994. The remaining
$2,200,000 of the debt securities (together with accrued interest thereon) was
repaid from the proceeds of the IPO. The Company had a capital lease obligation
of $90,000 as of March 31, 1996. See "Debt Financings."

The Company's net cash used in operating activities during the periods
ended March 31, 1996 and 1995 was $1,627,000 and $1,296,000, respectively. The
increase in cash used in operations was due primarily to an increase in R&D and
marketing activities. The Company's net cash used in operating activities during
the years ended December 31, 1995, 1994, and 1993 was $4,993,000, $4,354,000,
and $2,480,000, respectively. The increases in cash used in operations were due
primarily to increased R&D, medical evaluation activity, and marketing. As of
March 31, 1996, the Company had cash and short-term investments totaling
$2,698,000. This compares with cash and short-term investments totaling
$4,398,000, $5,708,000, and $160,000 at December 31, 1995, 1994, and 1993,
respectively. The decrease in cash at March 31, 1996 was due to the use of cash
for operations. The decrease in cash at year end 1995 was due to the use of cash
for operating activities, partially offset by the receipt of $3,600,000 of net
proceeds from the placement of Series C Preferred Stock. The increase in cash
balance from 1993 to 1994 is the result of the completion of the IPO and the
receipt of $9,000,000 of net proceeds therefrom. As of March 31, 1996, the
Company had working capital of $2,347,000 as compared to working capital of
$3,822,000 at December 31, 1995. This compares with working capital of
$5,408,000 at December 31, 1994 and a working capital deficit of $1,924,000 at
December 31, 1993. Working capital at March 31, 1996 is primarily the result of
the net proceeds received from the Series C Preferred Stock, offset by cash used
for operating activities. Working capital at December 31, 1995 is primarily the
result of the net proceeds received from the sale of the Series C Preferred
Stock. The working capital at December 31, 1994 is a consequence of the receipt
of IPO proceeds and their investment in short-

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term securities. The working capital deficit in 1993 was primarily the result of
the Company's use of short-term notes to fund operating expenses.

The Company has no material commitments for capital expenditures. However,
the Company has entered into agreements with design engineering firms pursuant
to which the Company has paid and will continue to pay a substantial portion of
the cost of developing a commercial version of the Digital Holography System.
These contracts include some fixed price provisions, as well as time and
materials payments. See "Use of Proceeds." The Company anticipates that its
aggregate future commitments under these agreements will exceed $750,000.

The Company believes that the net proceeds of the Offering, together with
available cash, will be sufficient to meet the Company's operating expenses and
capital requirements for at least 12 months following completion of the
Offering. However, the Company will require additional funding in order to
achieve its operating objectives. The amount and timing of the Company's future
capital requirements will depend upon many factors, including progress of the
Company's research and development and the extent and timing of acceptance of
the Digital Holography System. There can be no assurance that any additional
financing will be available to the Company on acceptable terms, or at all, when
required by the Company. See "Risk Factors -- Need for Additional Financing."

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<PAGE> 20

BUSINESS

OVERVIEW

Voxel is engaged in the development and marketing of a proprietary system,
the Digital Holography System, that produces "three-dimensional X-rays" of the
internal structure of the human body. The System consists of the Voxcam(R)
imager, an electro-optical instrument that holographically images CT and MR data
on film; Voxbox(R) light boxes to view the film; and Voxfilm(TM), special silver
halide film to record the hologram. The proprietary process used by the Voxcam
to encode information makes it possible to record up to 200 or more
cross-sectional images from a CT or MR examination on a single sheet of Voxfilm.
The finished image is called a Voxgram(R). On September 29, 1995, the Company
received clearance from the FDA to market all three elements of its Digital
Holography System.

More than 40 medical centers have studied Voxgrams' clinical utility in
connection with conditions that affect anatomical regions most commonly targeted
by CT and MR examinations -- the head, spine, skeleton, and blood vessels. This
research has yielded more than 120 scientific presentations and papers and five
articles in relevant medical journals. The results of these studies suggest that
Voxgrams provide for more accurate and comprehensive diagnosis of medical
conditions and improve surgical planning. The Company believes that Voxgrams may
also save time in the operating theatre and in the surgical planning process,
and may enable physicians to diagnose conditions that are extremely difficult or
impossible to detect with existing display techniques.

Voxel's principal strategic objective is to make it necessary for
diagnostic imaging sites to offer volumetric holographic images in addition to
cross-sectional images in order to be considered acceptable providers. The
Company's potential United States market encompasses more than 5,000 hospital
and diagnostic imaging centers which, using more than 9,000 CT and MR scanners,
performed in excess of 26 million examinations in 1994. Each of these sites is a
potential purchaser of the System and each of these patient examinations could
potentially be printed on Voxfilm. The Company believes that Japanese
utilization of CT and MR scanners is comparable to that of the United States and
Europe's utilization of CT and MR scanners is growing.

MEDICAL IMAGING

The ability to examine and comprehend the internal workings of the human
body is a critical element of diagnostic medicine. Before the discovery of
X-rays, a physician's ability to understand internal human

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anatomy was limited to indirect visual and acoustic techniques or exploratory
surgery. The critical importance of discovering what was occurring inside the
patient led to the adoption of a series of increasingly advanced medical imaging
modalities: first X-ray, then CT, then MR. Management believes that these
improvements in the means for collecting information about the inside of the
body have not been matched by corresponding progress in techniques for
displaying the data.

The more advanced medical imaging modalities, CT and MR, are highly
specialized. These modalities can be crucial to accurate diagnosis and
successful treatment, and are now in general use. However, the complexity of
their images limits the degree to which doctors can appreciate and utilize the
information they contain. Unlike the conventional X-ray films familiar to most
physicians, the complicated CT and MR displays may be fully understood only by
radiologists.

Two-Dimensional Data Acquisition: X-rays

X-rays were discovered in 1895. For the first time, physicians were able to
see inside the human body without performing surgery. The images were simple
projections of the anatomy onto one plane created by the differential absorption
of X-rays by the various body tissues. The physician used his or her prior
knowledge and experience to mentally generate the third dimension.

Three-Dimensional Data Acquisition: CT and MR

All forms of medical imaging collect information from volumetric targets.
All depth information is lost in conventional X-ray images. CT, the first
practical system to provide more data about the third dimension, was developed
during the late 1960s. CT scanners employ a mathematical technique to derive
images from a series of measurements taken with a rotating X-ray source and
electronic detectors. Each of the resulting images shows a "slice" through the
patient. A sequence of such slices is obtained by repeating the imaging process
while moving the patient along the axis of the scanner. The resulting stack of
slices contains detailed information about the three-dimensional structure of
the patient. The slices are printed next to each other on a flat piece of film.

MR imaging was developed in the early 1980s. MR measures radio waves
emitted by a chemical element in the body which is selectively excited in the
presence of a strong magnetic field. The signals emitted are influenced by their
environment, which is important for tissue differentiation. Because the body is
primarily made up of water and fat (both of which contain abundant quantities of
the needed element), a great many signals are produced. The computers in MR
scanners use complex mathematical formulae to convert these signals into slice
images. An advantage of using MR is that anatomical structures can be observed
from any orientation. Nonetheless, the data are displayed in two-dimensional
form on flat film or a video terminal.

In order to benefit from CT and MR technologies, radiologists have had to
learn to interpret changes through the volume of the patient's anatomy from sets
of two-dimensional slices, attempting three-dimensional reconstruction in their
minds.

Interpreting CT and MR Data

The medical imaging process involves several steps. Initially, a patient
will have seen a primary physician who will have made a provisional diagnosis
prior to referring the patient to a radiologist. The radiologist will consider
the provisional diagnosis in deciding how to examine the patient. Selection of
the appropriate modality, i.e., CT or MR, the specific techniques to be used in
collecting the data, and whether to use contrast agents to enhance the data,
requires considerable skill and experience. A radiological technologist conducts
the CT or MR examination, reviews the images to confirm their quality, and
routes them to a camera (sometimes referred to as a printer) that makes black
and white film copies.

The radiologist examines the CT and MR images on a light box and dictates a
report for the referring physician. In arriving at a conclusion, the radiologist
attempts to integrate the information from all of the slices to create a single
mental picture of the relevant portion of the patient's anatomy. Mental
reconstruction can be subjective. Different examiners may "see" different
pictures. Radiologists sometimes find it difficult to

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visualize the third dimension accurately. Referring physicians (who have had
less training and experience examining images) may be at an even greater
disadvantage. These limitations arise from a key problem: a patient's body is a
complex volumetric structure, an assembly of tissues and organs which
intermingle and combine in three dimensions, while conventional displays are
two-dimensional. A better display technique could enhance the efficiency -- and
the accuracy -- of interpretation, treatment planning, and therapeutic
intervention. In addition, patients would benefit from seeing a more
recognizable representation of their condition, so that they could better
understand the advice of their physicians and provide more fully informed
consents.

THE VOXEL SOLUTION

Digital Holography

Unlike traditional two-dimensional displays of CT and MR data, the Digital
Holography System provides an accurate, life-size three-dimensional image of the
patient's anatomy. The System, of which pre-production prototypes are currently
being constructed, consists of three components -- the Voxcam, the Voxbox, and
Voxfilm. Together, they enable a user to produce and examine Voxgrams. The
Voxcam is a laser-driven optical camera that receives electronic images
collected by CT and MR scanners, projects them using a liquid crystal display
(similar to those used in certain video projection systems), and records them on
Voxfilm. Each image from a scan is individually exposed in sequential fashion
and in its proper location. All of these exposures are recorded on a single
piece of Voxfilm, which is then developed in an attached automatic processor.

Once the Voxfilm has been processed, it is displayed on a special lightbox
called a Voxbox. The Voxbox is an inexpensive, compact, self-contained, portable
unit. Although the Voxbox contains proprietary technology to illuminate the
Voxgram, it is similar in appearance to the light boxes currently used
throughout medicine for viewing conventional two-dimensional film. The Voxbox
uses ordinary white light to reconstruct the hologram instead of requiring a
laser as is usually the case. The Voxbox can be rotated or tilted, allowing the
user to view a Voxgram from a variety of different perspectives.

Voxfilm shares many characteristics with ordinary X-ray film, but its
composition and the proprietary process used to encode information make it
possible to record, when appropriate, more than 200 slices from a CT or MR
examination on a single sheet. An exposed and developed Voxgram is a 14" by 17"
sheet of film which reveals only a faint glow when held up to ambient light.
When placed upon a Voxbox, it displays a detailed three-dimensional image
stretching through a six-inch deep volume.

Assimilating Voxel's technology will not require a major change in a
hospital's equipment or procedures. The CT and MR examination procedures are
unchanged. Additional scanner time will not be required and the patient's
radiation dose will not be changed. The data will be prepared for printing using
a technique similar to that used to prepare two-dimensional images. After
scanning the patient, the technician will adjust brightness and contrast to get
the most useful images, which will then be printed.

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[ARTWORK]

The Digital Holography System as it is expected to be used in a typical
radiology suite. The Voxcam and Voxboxes are analogous to conventional
two-dimensional cameras and light boxes.

Holography

Holography is similar to photography. In both, light illuminates an object
and the reflected light is recorded in a thin photosensitive layer on a sheet of
film. There are, however, substantial differences between photography and
holography. The lens of a photographic camera forms a single image of an object,
flattening it to a two-dimensional picture. When looking at a photograph, one
can only see this flat picture as it appeared from the original vantage point of
the camera lens. A holographic camera, on the other hand, uses a laser in place
of a lens and records the entire wave front emanating from an object. This wave
front contains intensity, distance, and directional information. The object is
recorded and displayed three-dimensionally, and one can view the object as it
would have appeared from a whole range of different vantage points by simply
moving one's head.

Conventional Holography

A conventional hologram is made by splitting a laser beam in half, shining
one part, the "reference beam," onto the holographic film and directing the
other, the "object beam," to reflect off the object to be holographed.
Information about the object's appearance and position are recorded when the
beams intersect on film.

Multiple Exposure Holography

Reflecting light off of an object is not feasible when the "object" is
inside a patient's body. Thus, a Voxgram cannot be a conventional hologram.
Instead, the "object" for a Voxgram is a projection screen which sequentially
shows slices from a CT or MR scan. A hologram of the first slice is made, then
the screen is moved back a distance corresponding to the gap between the slices,
the next slice is projected onto it, and a second hologram is superimposed on
the first. More slices are encoded by repeating this procedure with
appropriately greater distances between the screen and the film. The process is
similar to multiple-exposure photography where several exposures are made on a
single piece of film, but the holograms encode the location

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as well as the intensity of each exposure. When reconstructed, each holographic
exposure appears at a different distance from the film; the slices are suspended
in space with the correct separation between them.

[ARTWORK]

Schematic for making a volumetric multiple-exposure hologram of an MR or CT scan
(simplified).

A large number of exposures (up to 200 or more) can be combined with proper
selection of holographic angles, intensities, and processing chemicals.
Management believes that without Voxel's proprietary technology one cannot
combine more than a small number of slices.

The Company has expended substantial resources developing the Digital
Holography System, including research and development expenses totaling
$699,000, $1,191,000, $2,924,000, $3,619,000, and $1,005,000 for the years ended
December 31, 1992, 1993, 1994, and 1995, and the three months ended March 31,
1996, respectively.

Holographic Display Systems

A hologram must be illuminated correctly to be seen as a bright,
undistorted image without any compromise in its three-dimensionality. To achieve
correct illumination, the classic method is to use laser light identical to that
with which the hologram was made. However, suitable lasers are expensive and
inconvenient; they generally are not found outside optics laboratories. There
are several alternatives which use white light instead of a laser:

- One approach uses the hologram as a filter to reduce the incoming light
to one color: the image becomes sharper but dimmer. Medical images require a
sharp, bright image.

- Another approach is to sacrifice the vertical information in a hologram,
which causes the image to disappear when viewed from above or below. Medical
images must be viewable from vertical as well as horizontal perspectives.

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- The proprietary Voxbox solves the current limitations inherent in white
light displays by pre-spliting the light into an inverted spectrum enabling the
hologram to recombine the light into a bright, sharp image while preserving both
vertical and horizontal perspectives.

[ARTWORK]

Schematic for the prototype Voxbox, a white-light viewer for holograms
(simplified).

CLINICAL APPLICATIONS RESEARCH

Evaluations of Voxel's proposed system have been conducted, and are
continuing, at medical centers throughout the United States, including Harvard
University, George Washington University, the Mallinckrodt Institute of
Radiology, and the University of New Mexico. These programs have concentrated on
the parts of the body (i.e., the head, spine, skeleton, and blood vessels) and
the kinds of conditions (i.e., tumors, trauma, and vascular abnormalities) that
are commonly examined with CT and MR scanners. The studies are designed to
determine if the Digital Holography System will (i) allow diagnosis of
conditions that are extremely difficult or impossible to detect with existing
technology; (ii) provide for more accurate and comprehensive diagnosis and
understanding of conditions that are difficult to characterize fully with
existing technology; (iii) increase the radiologist's confidence in the
diagnosis made; (iv) reduce the time required to arrive at a diagnosis; (v)
facilitate communication of relevant information to referring physicians; (vi)
improve surgical planning; and (vii) allow for more fully informed patient
consent to treatment.

Studies of the System began in the Spring of 1992. In practice, the Voxcam
is intended to be directly connected to CT and MR scanners so that the digital
data from the scanners can be made into Voxgrams on site. In order to conserve
the Company's financial resources, a program was designed to simulate the
presence of a Voxcam in each participating institution. Participating
institutions transmit data from study cases to the Company by sending relevant
tapes or disks. Voxel's personnel produce the corresponding Voxgrams and return
them to the institutions by overnight courier. Because each site has been
provided with Voxboxes, physicians can examine the Voxgrams in the same manner
as if they had been produced on site. The Company does not pay for the CT or MR
scan or the interpretation and has rarely paid for the costs of the research

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study. No other payments have been made to investigators or their institutions.
Participants are free to publish their findings.

Voxel's research collaborators have presented over 120 oral papers and
scientific exhibits reporting on the usefulness of the Company's technology at
domestic and international meetings of medical and scientific organizations.
Several additional papers have been accepted for presentation in the near future
and more are under consideration for meetings scheduled through November 1996.

The principal forum for scientific reports on medical imaging is the annual
meeting of the Radiological Society of North America ("RSNA") which is attended
by more than 20,000 physicians and health professionals. Many of the
aforementioned papers and exhibits have been presented at RSNA meetings and
others have been given at meetings of radiologic subspecialists (e.g., American
Society of Neuroradiology, European Society of Neuroradiology, British Society
of Neuroradiology, and American Society of Emergency Radiology). Referring
physicians, especially neurosurgeons, orthopedists, and cardiologists, have also
made presentations to their peers at their own professional meetings.
Presentations have been made at the Congress of Neurosurgeons, the American
Academy of Neurological Surgeons, the American Academy of Orthopedic Surgeons,
the American Heart Association, and the American College of Cardiology.

The reports by Voxel's research collaborators at domestic and international
meetings suggest that the Company's technology is useful in diverse settings and
in support of the indications most commonly targeted by CT and MR procedures,
including neurological, orthopedic, and cardiac conditions. Most of the data for
these submissions were collected using traditional CT or MR techniques, but
these submissions also included studies using leading edge scanner applications
such as (i) non-invasive MR visualization of blood vessels, (ii) MR
visualization of the nervous system, (iii) high speed, high resolution CT, and
(iv) three-dimensional ultrasound.

SALES AND MARKETING

Voxel's principal strategic objective is to make it necessary for
diagnostic imaging sites to offer volumetric holographic images in addition to
cross-sectional images in order to be considered acceptable providers. In 1994,
approximately 5,000 sites in the United States, using more than 9,000 CT and MR
scanners, performed approximately 26 million procedures. When the Digital
Holography System becomes available for sale, management expects to participate
in this market through the sale of Voxcams and Voxboxes, as well as through
continuing sales of Voxfilm and development chemicals. The Company believes that
Japanese utilization of CT and MR scanners is comparable to that of the United
States and Europe's utilization of CT and MR scanners is growing. The Company
expects to participate in those markets after the Digital Holography System has
been introduced in the United States. However, there can be no assurance that
the Digital Holography System will be accepted for general use in connection
with any of the illnesses which are commonly examined with CT or MR scanners.

The Company's initial marketing efforts will focus on institutions with CT
or MR scanners that have active neurosurgery and orthopedic surgery practices.
These practices are responsible for prescribing the majority of CT and MR
studies performed and they use the resulting images in the planning and
execution of surgical procedures. After an institution has purchased the Digital
Holography System, the Company intends to expand the System's utilization and
increase film consumption by promoting the technology to other of the
institution's medical specialists.

The Company plans to use a direct sales force to call on potential
customers who will have been qualified by virtue of the scanners they use, the
number of neurosurgical and orthopedic procedures they perform, and their
geographic proximity to System installations then in place. The sales effort is
expected to include intensive after-sale customer service to facilitate the
routine use of Voxgrams for the aforementioned conditions and the use of
Voxgrams for new medical applications which may be revealed by ongoing research.

Several companies currently distribute film to the medical marketplace.
Voxel has had initial discussions with certain of those companies regarding
distribution of Voxfilm. A quality field service program is another prerequisite
to the Company's success. Established national organizations have expressed
interest in perform-

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ing field service on the Company's behalf. Discussions are underway which Voxel
anticipates may result in acceptable arrangements. However, there can be no
assurance that the Company will be able to obtain either film distribution or
field service on commercially desirable terms or at all.

The Company has no experience in marketing, sales, or distribution, and no
facilities or resources with which to conduct such activities. To market the
Digital Holography System, the Company must develop a marketing and sales force
with technical expertise and the Company must arrange for a supporting
distribution capability. There can be no assurance that the Company will be able
to establish suitable sales, distribution or support capabilities.

INTELLECTUAL PROPERTY

The Company's success is dependent in large measure on its ability to
obtain patent protection for the System, maintain confidentiality of its trade
secrets and proprietary know-how, and operate without infringing upon the
proprietary rights of third parties.

The Digital Holography System has three main components: the Voxcam, the
Voxbox, and Voxfilm. Two patents relating to the Voxbox have been granted in the
United States, and corresponding patents have issued in Japan, Canada, the
United Kingdom, Australia, and numerous European countries. The United States
patents will expire in 2003.

The Company believes that it will be granted proprietary protection for
both the individual elements of the Digital Holography System and for the system
as a whole. The Company's intellectual property derives in large part from a
unique method for making a multiple exposure hologram which may contain 200 or
more individual images. This method requires an understanding of a variety of
factors that control how many exposures a given piece of film can accommodate
(the film's image capacity) as well as the ability to make each of the exposures
in the hologram so that it uses the appropriate portion of that image capacity.
The Company filed a comprehensive patent application in 1992 which covers
substantially all aspects of this method, the Voxcam, the wet-chemical
processing of holograms, the film employed in the process, and numerous other
technological advancements developed by the Company. The application was filed
in the United States, preserving all applicable rights to file timely
corresponding applications throughout the world. The Company has received and
responded to preliminary communication from the U.S. Patent and Trademark
Office.

There can be no assurance that this or any future patent applications filed
by the Company will be granted or that, if a patent is granted as a result of
the current application, such patent will cover all or a substantial portion of
the proposed claims. With respect to patents held by the Company or issued to
the Company in the future, there can be no assurance that such patents will
provide competitive advantages or will not be challenged by third parties or
that patents issued to others will not have an adverse effect on the ability of
the Company to conduct its business. In addition, there can be no assurance that
the Company's patents would be held valid by a court of law of competent
jurisdiction or, if held valid, the Company would have sufficient resources to
enforce its patent rights. In the event the Company is found to have infringed
upon the patent rights of others, there can be no assurance that Voxel would be
able to obtain licenses to any of such patents.

The Company also relies on trade secrets and proprietary know-how. The
Company has been, and will continue to be, required to disclose its trade
secrets and proprietary know-how not only to employees and consultants, but also
to potential corporate partners, collaborators, and contract manufacturers.
Although the Company seeks to protect its trade secrets and proprietary
know-how, in part by entering into confidentiality agreements with such persons,
there can be no assurance that these agreements will not be breached, that the
Company would have adequate remedies for any breach, or that the Company's trade
secrets and proprietary know-how will not otherwise become known or be
independently discovered by competitors. See "Risk Factors -- No Assurance of
Obtaining Patent Protection and Maintaining Confidentiality of Proprietary
Information."

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THIRD-PARTY REIMBURSEMENT

The cost of a significant portion of medical care in the United States is
funded by government and private insurance programs, such as Medicare, Medicaid,
health maintenance organizations, and private insurers, including Blue
Cross/Blue Shield plans. Governmental imposed limits on reimbursement of
hospitals and other health care providers have significantly impacted their
budgets. Under certain government insurance programs, a health care provider is
reimbursed a fixed sum for services rendered in treating a particular condition,
regardless of the actual costs of such treatment. Private third-party
reimbursement plans and health maintenance organizations are also developing
increasingly sophisticated methods of controlling health care costs through
redesign of benefits and exploration of more cost-effective methods of
delivering health care. In general, these government and private
cost-containment measures have caused health care providers to be more selective
in the purchase of medical products.

The availability and magnitude of third party reimbursement for the costs
of use of Digital Holography may vary as a function of the identity of the
payor, the setting in which the CT or MR examination is performed, and the
billing practices of the entity that uses the System. The Company will attempt
to provide its customers with guidance as to the appropriate methods to seek
third-party reimbursement for use of Digital Holography. To facilitate
reimbursement, the Company has initiated efforts directed towards obtaining a
modification to existing codes for reporting medical procedures to explicitly
reference holographic imaging or a new code specific to holographic display of
CT or MR data. The process to amend coding guidelines is lengthy and there can
be no assurance that the Company's efforts in this regard will be successful.

Significant uncertainty exists as to the reimbursement status of newly
approved health care products, and there can be no assurance that adequate
third-party reimbursement will be available. Neither Medicare nor any other
third party payor has considered the reimbursement status of the System.
Limitations imposed by government and private insurance programs and the failure
of certain third-party payors to fully or substantially reimburse health care
providers for the procedures associated with use of the System could have a
material adverse effect on the Company. See "Risk Factors -- Uncertainty
Relating to Third Party Reimbursement."

MANUFACTURING

Voxel manages the development and engineering of its products but will use
original equipment manufacturers to produce the Voxcam, Voxbox, and Voxfilm. To
date, development and engineering activities with respect to pre-production
prototypes of the Voxcam have been performed for the Company by General Scanning
Inc. ("GSI"), a firm that has designed and manufactured medical imaging devices
for major domestic and international suppliers. These development and
engineering activities have focused on implementing significant improvements
over the current laboratory prototypes of the Voxcam. The Company believes that
these improvements are necessary to create a commercial product that would
satisfy potential customers. Areas of improvement include shape, size, user
interface, extent of automation, component cost, and ability to withstand
hostile environments. There can be no assurance that a sufficient number of
these improvements will be achieved to create a viable commercial product. In
August 1994, the Company entered into a development and supply contract for the
Voxcam with GSI. The Company continues to take steps to foster its manufacturing
program. For example, in January 1995, Voxel agreed to provide increased
financial support to GSI and GSI agreed to increase resource allocation for
Voxcam development. GSI is currently constructing the Beta Units in anticipation
of commencement of field testing to confirm their proper operation. Upon
successful completion of field testing, of which there can be no assurance, GSI
will commence production of Voxcams for commercial sale.

Voxel is evaluating a number of potential suppliers for the Voxbox. The
Company currently purchases Voxfilm from Agfa Gevaert, one of the world's
leading manufacturers of silver halide film products. There can be no assurance
that manufacturers with which the Company is currently cooperating will meet the
Company's requirements for quality, quantity, and timeliness and the FDA's GMP
requirements or that, in the future, the Company would be able to find a
substitute manufacturer for the elements of the Digital Holography System. The
System must be manufactured in compliance with GMP in order for it to be

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distributed in the United States. The Company's dependence on others for the
manufacture of its products may adversely affect the future profit margin, if
any, on the sale of the System and the Company's ability to develop and deliver
products on a timely and competitive basis. See "Risk Factors -- Dependence on
Others for Manufacture" and "Business -- Government Regulation."

COMPETITION

Voxel is not aware of any academic or commercial institution actively
developing multiple exposure holography to display medical images.

The Digital Holography System may compete in the future for market share
with currently available methodologies for viewing the results of CT and MR
scans. Potential purchasers of the Digital Holography System may determine that
currently available display techniques for CT and MR with which they are already
familiar (including unaided visual examination of the slice images) are
sufficient to make requisite diagnoses and facilitate treatment. The perceived
value of the Digital Holography System may be influenced by future health care
legislation, insurance reimbursement policies, and cost-containment measures
adopted by health care providers and payors. In addition, competition may arise
from products currently in development, or that may be developed in the future,
by other companies. Many of the current and potential competitors are likely to
have substantially greater capital resources, research and development staffing,
and facilities than the Company. In addition, many potential competitors have
extensive experience with CT and MR procedures and technologies.

One currently available alternative approach to volumetric display is to
use computer graphics technology. A single pseudo-three-dimensional picture is
synthesized from the individual two-dimensional images. Traditional artistic
effects (e.g., shading, perspective) are used to convey an impression of depth.
The Company believes that one of the limitations of computer-generated
pseudo-three-dimensional images is that only psychological depth cues can be
used. Psychological cues depend on surfaces; computer-generated surfaces
introduce certain compromises and distortions. Moreover, substantial computer
hardware and software skill, experience, time, and effort are required to
produce these pictures. A variety of suppliers of CT and MR scanners as well as
independent companies offer software and workstations that generate pseudo-
three-dimensional pictures. These systems also have other uses; they enable
radiologists to interact with the data that have been collected by scanners and
they may facilitate the production of "what if " images which some surgeons have
found useful in surgical planning. When used for that purpose, the workstations
can serve as a source of data for Voxgrams so true volumetric displays can be
made after the data have been manipulated. The Company believes that Voxgrams
may, therefore, add value to users of workstations. While the Company views
workstations as complementary, some physicians may find them to be an acceptable
alternative to the Digital Holography System. See "Risk Factors -- Intense
Competition and Rapid Technology Change."

GOVERNMENT REGULATION

The medical devices currently under development by the Company are
regulated by the FDA under the Federal Food, Drug and Cosmetic Act (the "FDC
Act") and require regulatory clearance prior to commercialization in the United
States. Under the FDC Act, the FDA regulates preclinical and clinical testing,
manufacturing, labeling, distribution, sale, marketing, advertising, and
promotion of medical devices in the United States. Noncompliance with applicable
requirements can result in fines, injunctions, civil penalties, detention,
recall or seizure of products, total or partial suspension of production,
distribution, sales and marketing, withdrawal of marketing approvals or
clearances, a recommendation by the FDA that the manufacturer or distributor not
be permitted to enter into government contracts, and criminal prosecution. In
certain circumstances, the FDA also has the authority to order the manufacturer
or distributor of a device to repair, replace, or refund the cost of the device.
Various states and other countries in which the Digital Holography System may be
sold in the future may impose additional regulatory requirements.

Following the enactment of the Medical Device Amendments of 1976 to the FDC
Act, the FDA classified medical devices in commercial distribution at the time
of enactment into one of three classes --

29
<PAGE> 30

Class I, II, or III. This classification is based on the controls necessary to
reasonably ensure the safety and effectiveness of medical devices. Class I
devices are those whose safety and effectiveness can reasonably be ensured
through general controls, such as labeling, the pre-market notification
("510(k)") process, and adherence to FDA-mandated GMP. Class II devices are
those whose safety and effectiveness can reasonably be ensured through the use
of general controls together with special controls, such as performance
standards, post-market surveillance, patient registries, and FDA guidelines.
Generally, Class III devices are devices that must receive pre-market approval
by the FDA to ensure their safety and effectiveness. They are typically life-
sustaining, life-supporting, or implantable devices, and also include most
devices that were not on the market before May 28, 1976 and for which the FDA
has not made a finding of substantial equivalence based upon a 510(k).

If a manufacturer or distributor of medical devices can establish to the
FDA's satisfaction that a new device is substantially equivalent to a legally
marketed Class I or Class II medical device or to a Class III device for which
the FDA has not yet required pre-market approval, the manufacturer or
distributor may market the device. In the 510(k), a manufacturer or distributor
makes a claim of substantial equivalence, which the FDA may require to be
supported by various types of information showing that the device is as safe and
effective for its intended use as the legally marketed predicate device.
Following submission of the 510(k), the manufacturer or distributor may not
place the new device into commercial distribution until an order is issued by
the FDA finding the new device to be substantially equivalent.

On September 6, 1995, the Company submitted a 510(k) to the FDA covering
the Voxcam, Voxbox, and Voxfilm. On September 29, 1995, the Company received
findings of substantial equivalence from the FDA covering the Voxcam, Voxbox,
and Voxfilm, permitting the commercial distribution of the Digital Holography
System as an adjunct to current two dimensional display techniques for
diagnostic image data.

If the Company needs, either before or after commercial release of the
Digital Holography System, to make a modification (e.g., in design or intended
use) which could significantly affect the safety or effectiveness of the Digital
Holography System, the Company will be required to submit a new 510(k) and
establish to the FDA's satisfaction that the Digital Holography System, as
modified, is substantially equivalent. The need to obtain FDA clearance of a new
510(k) (which would not be assured) could significantly delay (or prevent)
commercialization of a modified Digital Holography System. The Company does not
currently intend to take any action to modify the System or its intended use in
a fashion which would make it unsuitable for 510(k) clearance. See "Risk
Factors -- Continued Regulatory Compliance Required."

The Company will also be required to register as a medical device
manufacturer with the FDA and state agencies, such as the California Department
of Health Services ("CDHS"), and to file a listing of its products
semi-annually. The Company or its contract manufacturer (see "Risk
Factors -- Dependence on Others for Manufacture") will be inspected on a routine
basis by both the FDA and the CDHS for compliance with the FDA's GMP and other
requirements including the medical device reporting regulation and various
requirements for labeling and promotion. The FDA's GMP regulation requires,
among other things, that (i) the manufacturing process be regulated and
controlled by the use of written procedures, and (ii) the ability to produce
devices which meet the manufacturer's specifications be validated by extensive
and detailed testing of every aspect of the process. The regulation also
requires investigation of any deficiencies in the manufacturing process or in
the products produced and detailed record keeping. The FDA has proposed changes
to the GMP regulation that would, if finalized, likely increase the cost of
complying with GMP requirements. The medical device reporting regulation
requires that the device manufacturer provide information to the FDA on deaths
or serious injuries alleged to have been associated with the use of its marketed
devices, as well as product malfunctions that would likely cause or contribute
to a death or serious injury if the malfunction were to recur. Also, because the
Voxcam will contain a laser, the Company will be required to comply and certify
compliance with the FDA's performance (safety) standard governing laser
products. Changes in existing requirements or interpretations (on which
regulations heavily depend) or adoption of new requirements or policies could
adversely affect the ability of the Company to comply with regulatory
requirements. Failure to comply with regulatory requirements could have a
material adverse effect on the Company's business, financial condition and
results of operations. Compliance with such laws and regulations now or in the
future could require substantial expenditures by the Company.

30
<PAGE> 31

OTHER POTENTIAL MARKETS

Voxel's technology is also potentially useful in a variety of other
non-medical settings where volumetric information is important, such as
non-destructive testing of airplane parts and volumetric visualization of oil
fields and atomic reactor cores. In order for the Digital Holography System to
be useful for these applications, potential customers would have to collect data
in an appropriate format. Collecting appropriate data could be expensive and
time consuming and, as a result, potential customers may consider the System
unsuitable. Proving that the Digital Holography System is suitable for these
applications will involve additional applications research. While the Company
currently intends to pursue these applications in the future, there can be no
assurance that it will have the resources to do so or that its efforts will be
successful.

EMPLOYEES

As of March 31, 1996, the Company employed 22 persons on a full-time basis,
of whom 14 were engaged in research and development, three in marketing, and
five in administration. The Company's ability to attract and retain qualified
personnel will be a significant factor in its potential for success. None of the
Company's employees is covered by collective bargaining agreements and
management considers the Company's relations with its employees to be good. See
"Risk Factors -- Dependence on Key Personnel."

FACILITIES

The Company leases approximately 11,000 square feet of laboratory and
office space in a business park in Laguna Hills, California. The leases for this
facility expire in February 1998. The Company believes that this facility should
be sufficient to meet the Company's needs for at least 12 months from the date
of this Prospectus. The Company anticipates that sufficient additional space
will be available within the same office park to meet its needs at acceptable
rents for the foreseeable future.

LEGAL PROCEEDINGS

The Company is not a party to any legal proceedings.

31
<PAGE> 32

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The executive officers and directors of the Company are:

<TABLE>
<CAPTION>
NAME AGE POSITION
- -------------------------- --- ------------------------------------------
<S> <C> <C>
Allan M. Wolfe, M.D.(1) 58 Chief Executive Officer, President, and
Chairman of the Board
Stephen J. Hart 35 Director of Research and Development and
Secretary
Michael N. Dalton 36 Director of Technical Business Development
Murray E. Rudin 33 Chief Financial Officer and Director of
Business Development
James B. Anderson, Ph.D. 46 Director
Alan S. Dishlip(1)(2) 44 Director
James C. Dreyfous(1)(2) 41 Director
John M. Holliman, III(2) 42 Director
</TABLE>

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

(1) Member of the Compensation Committee

(2) Member of the Audit Committee

Allan M. Wolfe, M.D. has been President, Chief Executive Officer, and a
director of the Company since he co-founded the Company in April 1988. From 1983
to 1988, Dr. Wolfe was a general partner (and co-founder) of the Life Science
Ventures division of Hambrecht & Quist Venture Partners. From 1980 to 1983, Dr.
Wolfe was a consultant offering management, strategic, and technical expertise
to several companies in the life science industry, including American Hospital
Supply Corporation, Alza Corporation, and W.R. Grace & Co. From 1975 to 1980,
Dr. Wolfe was a Vice President at McGaw Laboratories, a division of American
Hospital Supply Corporation, with responsibility for research and development
and strategic and operational planning. Dr. Wolfe holds an M.D. from New York
University School of Medicine and was Chief Resident in Medicine at State
University of New York, Downstate Medical Center. Dr. Wolfe has also been a
general partner of the general partner of Utah Ventures since 1988 and a special
limited partner of Crosspoint Venture Partners, a venture capital firm, since
1989.

Stephen J. Hart has been Director of Research and Development of the
Company since he co-founded the Company in April 1988 and Secretary of the
Company since June 1992. From 1985 to 1988, Mr. Hart performed research in
astrophysics and applied optics at Imperial College of Science and Technology,
University of London. In 1984 and 1985, Mr. Hart was (i) a project leader at
Icon Holographics Limited in London and (ii) a co-founder of Holoplex Systems, a
United Kingdom company which acquired the intellectual property of Icon
Holographics and is now an inactive subsidiary of Voxel. From 1981 to 1984, Mr.
Hart performed graduate work in astrophysics at Imperial College of Science and
Technology. Mr. Hart received a B.Sc. in Physics and Astronomy from Queen Mary
College, University of London.

Michael N. Dalton has been Director of Technical Business Development of
the Company since July 1995 and, prior to that date, was Director of Computing
since co-founding the Company in April 1988. From 1986 to 1988, Mr. Dalton was a
research associate in the Department of Photogrammetry at University College,
London developing software for analysis and synthesis of terrain imagery from
satellite data. From 1985 to 1986, Mr. Dalton was a software designer for Virgin
Computer Graphics in London. In 1984 and 1985, Mr. Dalton was (i) computer
systems manager at Icon Holographics Limited where he was involved in developing
certain of the technology on which the Voxcam is based and (ii) a co-founder of
Holoplex Systems. From 1981 to 1984, Mr. Dalton performed graduate work in
interplanetary atmospheric physics at Imperial College of Science and
Technology, University of London. Mr. Dalton received a B.Sc. in Physics from
Queen Mary College, University of London.

32
<PAGE> 33

Murray E. Rudin has been Chief Financial Officer and Director of Business
Development of the Company since June 1994, after having served as Director of
Finance and Business Development of the Company from January 1993 to June 1994.
From 1990 to December 1992, Mr. Rudin was a principal of Valley National
Investors, Inc., the venture capital subsidiary of Valley National Bank of
Arizona, where he was engaged in investment origination, evaluation,
structuring, and monitoring. From 1986 to 1990, Mr. Rudin was a corporate
attorney with the firm of Riordan & McKinzie in Los Angeles and Costa Mesa,
California, with a practice emphasizing private and public securities
transactions. Mr. Rudin holds a J.D. from Harvard Law School and a B.S. in
electrical engineering from the University of Rochester.

James B. Anderson, Ph.D. has served as a director of the Company since
1991. Dr. Anderson is currently the Second Vice President responsible for the
venture capital portfolio at The Travelers Insurance Companies. He was promoted
to his current position from Investment Officer in January 1994. Prior to
joining The Travelers Insurance Companies in 1987, Dr. Anderson was employed as
the Vice President of Research for Technology Assessment for Advest, Inc. from
1983 to 1987. Dr. Anderson holds a Ph.D. in Materials Science from the
University of Connecticut and a B.S. in Physics from Worcester Polytechnic
Institute. He is the co-author of 32 scientific articles and two books. He
currently serves on the Board of Directors of Molten Metal Technology, Inc., an
environmental services company and Biofield, Inc., a medical device company.

Alan S. Dishlip has served as a director of the Company since 1990. Mr.
Dishlip is Senior Vice President of First Portland Corporation, an equipment
leasing enterprise. Prior to joining First Portland Corporation in February
1995, Mr. Dishlip was a limited partner of Shaw Venture Partners since 1983 and
a general partner of Shaw Venture Partners II since 1987. Both Shaw entities are
venture capital firms. Mr. Dishlip serves on the Board of Directors of Protocol
Systems, Inc., a medical instrumentation company.

James C. Dreyfous has served as a director of the Company since 1991. For
the past twelve years, Mr. Dreyfous has served in various capacities for Utah
Ventures, a venture capital fund, and currently serves as Managing General
Partner of its general partner.

John M. Holliman, III has served as a director of the Company since 1993,
and previously from April 1990 through July 1991. Mr. Holliman has been a
general partner of the general partner of Valley Ventures L.P. (and its
predecessor, Arizona Growth Partners, L.P.), a Phoenix-based venture capital
investment partnership, since February 1993. From 1985 to February 1993, Mr.
Holliman served in various capacities, lastly as Senior Managing Director, of
Valley National Investors, Inc., the venture capital subsidiary of Valley
National Bank of Arizona. Mr. Holliman is also a director of Express America
Holdings Corporation, a financial services company, DenAmerica Corporation, a
restaurant services company, and OrthoLogic Corporation, a medical device
company.

Pursuant to the terms of a written agreement between the Company and A.R.
Baron & Co., Inc. ("Baron"), the Company has agreed, until November 1, 1999, to
nominate for election to the Board, upon Baron's request, one person to be
designated by Baron and to use the Company's best efforts to cause such
individual to be elected a director of the Company. The election of such person
may result in an increase in the number of directors to six. As of the date of
this Prospectus, Baron has not exercised such right.

All directors and executive officers of the Company have been elected to
serve until their successors have been duly elected and qualified. The next
election of directors is anticipated to occur at the Company's 1997 annual
meeting of shareholders.

33
<PAGE> 34

EXECUTIVE COMPENSATION

Summary Compensation Table

The table below sets forth information regarding compensation paid by the
Company during each of the Company's last three fiscal years to each executive
officer (the "Named Officer") of the Company who received salary and bonus
payments in excess of $100,000 during the year ended December 31, 1995.

<TABLE>
<CAPTION>
LONG TERM COMPENSATION
ANNUAL AWARDS(1)
COMPENSATION ----------------------
------------------ SECURITIES UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY($) OPTIONS(#)
--------------------------------------------- ---- --------- ----------------------
<S> <C> <C> <C>
Allan M. Wolfe, M.D. 1995 175,000 0
President and Chief Executive Officer 1994 152,083 148,289
1993 150,000 0
</TABLE>

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

(1) The Company has no stock appreciation rights plan or long-term incentive
plan.

Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR
Values

The table below sets forth information regarding (i) the exercise of stock
options by the Named Officer during the fiscal year ended December 31, 1995,
(ii) the number of unexercised options held by the Named Officer as of December
31, 1995, and (iii) the value as of December 31, 1995 of unexercised
in-the-money options held by the Named Officer.

<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS/SARS IN-THE-MONEY OPTIONS/SARS
ACQUIRED ON VALUE AT FISCAL YEAR-END(#) AT FISCAL YEAR-END($)
NAME EXERCISE(#) REALIZED($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE(1)
---------------------- ----------- ----------- ------------------------- ----------------------------
<S> <C> <C> <C> <C>
Allan M. Wolfe, M.D. 0 0 228,355/0 $834,026/$0
</TABLE>

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

(1) Value per share is determined based on the spread between the option
exercise price per share and the closing bid price for Common Stock as of
December 29, 1995, the last business day of the 1995 calendar year ($4.50
per share).

DIRECTOR COMPENSATION

Pursuant to separate option agreements, the Company granted to each of the
non-employee directors (Dr. Anderson and Messrs. Dishlip, Dreyfous, and
Holliman) an option to acquire 3,239 shares of Common Stock. With respect to
Messrs. Dishlip and Dreyfous, the option agreements are dated as of October 29,
1992 and provide for an exercise price of $0.51 per share. Dr. Anderson's
agreement is dated as of February 25, 1994 and provides for an exercise price of
$0.51 per share. Mr. Holliman's agreement is dated as of March 17, 1994 and
provides for an exercise price of $1.03 per share.

As of January 12, 1995, the Company granted to each of the non-employee
directors an option to acquire 5,000 shares of Common Stock. Each of such option
grants was made pursuant to a separate option agreement as of that date and each
grant provided for an exercise price of $5.31 per share. As of January 25, 1996,
the Company granted to each of the non-employee directors an option to acquire
3,761 shares of Common Stock. Each of such option grants was made pursuant to a
separate option agreement as of that date and each grant provided for an
exercise price of $2.625 per share.

All of the option agreements with directors referenced above in this
section provide for a ten-year term commencing on the date of grant and provide
that one-half of the options awarded thereby vest as of the date of the
respective agreement and the remaining options vest on the one year anniversary
thereof.

Except as described above, the Company's directors do not receive fees for
their services as directors but are reimbursed for expenses incurred by them in
connection with attendance at Board meetings.

34
<PAGE> 35

EMPLOYMENT AGREEMENTS

In June 1994, the Company entered into an employment agreement with Dr.
Wolfe for a term of three years, renewable upon the agreement of the Company and
Dr. Wolfe. The employment agreement provides for (i) an initial annual base
salary of $150,000, subject to annual review and increase and (ii) such
incentive bonus payments as the Board may from time to time determine. See
"Executive Compensation -- Summary Compensation Table." Dr. Wolfe's base salary
for 1996 is $175,000. During the term of the employment agreement and for three
years after its termination, Dr. Wolfe has agreed not to participate in any
business engaged in the development, manufacturing, or marketing of volumetric
image display systems for radiologic applications or holographic imaging
systems. Mr. Hart has also agreed to a similar non-compete provision for the
duration of his employment by Voxel and three years thereafter.

The Company enters into confidentiality agreements with its full-time
employees (including its executive officers) that prohibit disclosure of
confidential information to anyone outside of the Company both during and
subsequent to employment. Such agreements also require disclosure to the Company
of ideas, discoveries and inventions relating to or resulting from the
employee's work for the Company and assignment to the Company of all proprietary
rights to such ideas, discoveries, or inventions.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Prior to February 1994, the Company did not have a compensation committee
or other committee of its Board performing equivalent functions. During the year
ended December 31, 1993, the entire Board (including Dr. Wolfe) participated in
deliberations concerning executive compensation. None of such deliberations
concerned the compensation of Dr. Wolfe because Dr. Wolfe's compensation was
unchanged during that period. In February 1994, the Board created a Compensation
Committee consisting of Dr. Wolfe and Messrs. Dishlip and Dreyfous. Dr. Wolfe's
employment agreement and 1994 option grant were considered and approved by the
Board, in which consideration and approval process neither Dr. Wolfe nor Mr.
Dreyfous
participated or voted.

Dr. Wolfe and Mr. Dreyfous are general partners of the general partner of
Utah Ventures, a shareholder of the Company. Dr. Wolfe and Mr. Dreyfous each
participate in the determination of the other's compensation for services to
Utah Ventures in the following manner: Dr. Wolfe, Mr. Dreyfous, and a third
individual not affiliated with Voxel comprise the Management Committee of Utah
Ventures. Compensation of Management Committee members is determined by a
unanimous vote of the Management Committee, with the member whose compensation
is being determined not voting.

STOCK OPTION PLANS

The Company's 1992 Stock Plan (the "1992 Plan") was adopted by the Board in
1992 and approved by the Company's shareholders in 1993 to attract and retain
the best available personnel for positions of substantial responsibility, to
provide additional incentive to employees and consultants of the Company, and to
promote the success of the Company's business. Options granted under the 1992
Plan may be either incentive stock options as defined in Section 422A of the
Internal Revenue Code of 1986, as amended, or non-qualified stock options, at
the discretion of the Board, and in either case may contain performance-based
vesting criteria. The Company has reserved 563,616 shares of Common Stock for
issuance under the 1992 Plan. As of May 15, 1996, options to purchase an
aggregate of 432,360 shares were outstanding under the 1992 Plan at a weighted
average exercise price of $1.39, of which options to purchase an aggregate of
349,639 shares were immediately exercisable at a weighted average exercise price
of $1.16.

The Company's 1994 Executive Stock Option Plan (the "1994 Plan") was
adopted by the Board and approved by the Company's shareholders in 1994 for the
same purposes as the 1992 Plan. Option recipients under the 1994 Plan are
limited to executive officers of the Company. Options granted under the 1994
Plan may be either incentive stock options as defined in Section 422A of the
Internal Revenue Code of 1986, as amended, or non-qualified stock options, at
the discretion of the Board, and in either case may contain performance-based
vesting criteria. The Company has reserved 310,961 shares of Common Stock for
issuance under the 1994 Plan. As of May 15, 1996, options to purchase an
aggregate of 74,161 shares were outstanding

35
<PAGE> 36

at a weighted average exercise price of $2.15, of which options to purchase an
aggregate of 3,438 shares were immediately exercisable at a weighted average
exercise price of $1.50.

Both plans may be administered by the Board or a committee of the Board,
which committee is required to be constituted to comply with Section 16(b) of
the Securities Exchange Act of 1934, as amended, and applicable laws. Both plans
are currently administered by the Board. The entity administering each plan has
the power to determine the terms of any options granted thereunder, including
the exercise price, the number of shares subject to the option, and the
exercisability thereof. Options granted under either plan are generally not
transferable, and each option is exercisable during the lifetime of the optionee
only by such optionee. The exercise price of all incentive stock options granted
under either plan must be at least equal to the fair market value of the shares
of Common Stock on the date of grant, and non-qualified stock options granted
under the 1992 Plan must have an exercise price of at least 85% of the fair
market value of the shares of Common Stock on the date of grant. With respect to
any participant who owns stock possessing more than 10% of the voting power of
all classes of stock of the Company, the exercise price of any stock option
granted under the 1992 Plan and any incentive stock option granted under the
1994 Plan must equal at least 110% of the fair market value on the grant date
and the maximum term of any option granted under either plan must not exceed
five years. The term of all other options granted under either plan may not
exceed ten years. The specific terms of each option grant are approved by the
Board and are reflected in a written stock option agreement.

LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS

The Company's Articles of Incorporation (i) eliminate the liability of the
directors of the Company for monetary damages to the fullest extent permitted by
California law and (ii) authorize the Company to indemnify its officers and
directors to the fullest extent permitted by California law. The Company has
entered into indemnification agreements with its directors and executive
officers. Such agreements provide broad indemnification against expenses
(including legal fees, judgments, and Company-approved settlements) incurred in
connection with any civil or criminal action which arises from the performance
of duties for the Company. The agreements also provide that the Company will
indemnify such persons to the fullest extent permitted by law, notwithstanding
that such indemnification is not specifically authorized by the agreement, the
Company's Articles of Incorporation, the Company's Bylaws or statute. The
indemnification agreements apply to any action taken by the indemnitee while
serving as an officer or director of the Company, whether occurring before or
after the date of the agreement. The agreements do not provide indemnification
for any acts or omissions from which a director may not be relieved of liability
under the California Corporations Code.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers, or persons controlling the Company
pursuant to the foregoing provisions, the Company has been informed that in the
opinion of the Securities and Exchange Commission (the "Commission") such
indemnification is against public policy as expressed in the Securities Act and
is therefore unenforceable.

KEY MAN INSURANCE

The Company is the sole beneficiary of term life insurance policies, each
in the face amount of one million dollars, covering Dr. Wolfe and Mr. Hart.

36
<PAGE> 37

CERTAIN TRANSACTIONS

In April 1993, the Company issued unsecured convertible promissory notes in
the aggregate principal amount of $2,460,000 (the "Investor Notes"). In exchange
for the Investor Notes, the Company received total cash proceeds equal to their
principal amount, funded through several drawdowns during the period from May
1993 through April 1994. These notes and the accrued interest thereon were
exchanged for shares of Common Stock at the closing of the IPO. The Investor
Notes were sold to the following shareholders (collectively, the "Institutional
Shareholders") in the following principal amounts: The Travelers Companies
($1,000,000), U.S. Bancorp Capital Corporation ($500,000), Valley Ventures, L.P.
($500,000), New Era Investors ($300,000), and Utah Ventures ($160,000). Each
Institutional Shareholder, other than New Era Investors, is a beneficial holder
of 5% or more of the Common Stock. See "Debt Financings -- Investor Notes."

In May 1994, the Company issued unsecured promissory notes in the aggregate
principal amount of $400,000 in exchange for cash proceeds equal to the
principal amount. In June 1994, the Company issued additional similar unsecured
promissory notes in the aggregate principal amount of $800,000 in exchange for
cash proceeds equal to the principal amount. The aggregate principal amount of
$1,200,000 of these notes and the accrued interest thereon were repaid from
proceeds of the IPO. These notes were sold to the Institutional Shareholders in
the following principal amounts: The Travelers Companies ($630,000), U.S.
Bancorp Capital Corporation ($195,000), Valley Ventures, L.P. ($195,000), Utah
Ventures ($120,000), and New Era Investors ($60,000). See "Debt
Financings -- Supplemental Investor Notes."

Certain directors and officers of the Company are affiliated with the
Institutional Shareholders. Dr. Anderson, a director of the Company, is
affiliated with The Travelers Companies. Mr. Holliman, a director of the
Company, is a general partner of the general partner of Valley Ventures, L.P.
Dr. Wolfe, President, Chief Executive Officer, and a director of the Company,
and Mr. Dreyfous, a director of the Company, are general partners of the general
partner of Utah Ventures. See "Management -- Executive Officers and Directors."

37
<PAGE> 38

PRINCIPAL SHAREHOLDERS

The following table sets forth certain information as of May 15, 1996
concerning stock ownership of (i) all persons known by the Company to own
beneficially 5% or more of the outstanding shares of Common Stock, (ii) each
director of the Company, (iii) the Named Officer as defined in the Summary
Compensation Table under the caption "Executive Compensation" above, and (iv)
all executive officers and directors of the Company as a group.

<TABLE>
<CAPTION>
AMOUNT AND PERCENTAGE OF CLASS
NATURE OF ------------------------
BENEFICIAL BEFORE AFTER
NAME AND ADDRESS OWNERSHIP(1) OFFERING OFFERING(2)
- ----------------------------------------------------------- ------------ -------- -----------
<S> <C> <C> <C>
U.S. Bancorp Capital Corporation........................... 565,438 10.6% 7.1%
111 Southwest Fifth Avenue, Suite 1090
Portland, OR 97204
The Travelers Companies(3)................................. 561,312 10.5 14.2
One Tower Square
Hartford, CT 06183
Valley Ventures, L.P....................................... 343,736 6.4 4.3
6115 N. Scottsdale Road, Suite 100
Scottsdale, AZ 85250
Utah Ventures(4)........................................... 300,091 5.6 4.1
419 Wakara Way
Salt Lake City, UT 84108
Allan M. Wolfe, M.D.(5).................................... 605,700 10.9 7.7
Voxel
26081 Merit Circle, Suite 117
Laguna Hills, CA 92653
Bernard Levine, M.D........................................ 386,400 7.2 4.9
P.O. Box 2635
La Jolla, CA 92038
John M. Holliman, III(6)................................... 353,856 6.6 4.4
Valley Ventures, L.P.
6115 N. Scottsdale Road, Suite 100
Scottsdale, AZ 85250
James C. Dreyfous(7)....................................... 320,211 6.0 4.3
Utah Ventures
419 Wakara Way
Salt Lake City, UT 84108
Alan S. Dishlip(8)......................................... 10,120 * *
First Portland Corporation
7145 Southwest Varns Street
Portland, OR 97223
James B. Anderson, Ph.D.(8)................................ 10,120 * *
The Travelers Companies
One Tower Square
Hartford, CT 06183
All directors and executive officers
as a group (8 persons)(9)................................ 1,194,191 21.1 14.7
</TABLE>

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

* Less than one percent.

(1) Beneficial ownership is determined in accordance with the rules of the
Commission and generally includes voting or investment power with respect to
securities. Shares of Common Stock subject to options and warrants currently
exercisable, or exercisable within 60 days, are deemed outstanding for
computing the percentage of the person holding such option but are not
outstanding for computing the percentage of any other person. Except as
indicated by footnote, and subject to community property laws where
applicable, the persons named in the table above have sole voting and
investment power with respect to all shares of Common Stock shown as
beneficially owned by them.

38
<PAGE> 39

(2) Assumes no exercise of the Underwriters' over-allotment option.

(3) Beneficial ownership prior to the Offering represents 29,317 shares of
Common Stock held by The Travelers Insurance Company, 404,830 shares of
Common Stock held by The Travelers Indemnity Company, 115,295 shares of
Common Stock held by The Travelers Life and Annuity Company, and 11,870
shares of Common Stock held by The Phoenix Insurance Company, which together
comprise a group within the meaning of Section 13(d)(3) of the Securities
Exchange Act of 1934, as amended. Percentage ownership after the Offering
assumes the purchase in the Offering by the Travelers Companies of an
aggregate of $2,000,000 of Common Stock at an offering price of $3.50 per
share. See "Underwriting."

(4) Percentage ownership after the Offering assumes the purchase in the Offering
by Utah Ventures of an aggregate of $70,000 of Common Stock at an offering
price of $3.50 per share. See "Underwriting."

(5) Includes (i) 77,254 shares of Common Stock, (ii) 228,355 shares of Common
Stock subject to stock options exercisable as of May 15, 1996 or within 60
days thereafter, and (iii) 300,091 shares of Common Stock held of record by
Utah Ventures. Percentage ownership after the Offering assumes the purchase
in the Offering by Utah Ventures of an aggregate of $70,000 of Common Stock
at an offering price of $3.50 per share. See "Underwriting." Dr. Wolfe is a
general partner of the general partner of Utah Ventures. Dr. Wolfe disclaims
beneficial ownership of the shares of Common Stock held of record by Utah
Ventures, except to the extent of his pecuniary interest therein.

(6) Includes 343,736 shares of Common Stock held of record by Valley Ventures,
L.P. and 10,120 shares of Common Stock subject to stock options exercisable
as of May 15, 1996 or within 60 days thereafter. Mr. Holliman is a general
partner of the general partner of Valley Ventures, L.P. Mr. Holliman
disclaims beneficial ownership of the shares of Common Stock held of record
by Valley Ventures, L.P., except to the extent of his pecuniary interest
therein.

(7) Includes (i) 300,091 shares of Common Stock held of record by Utah Ventures,
(ii) 5,000 shares of Common Stock held of record by trusts for the benefit
of Mr. Dreyfous' children, of which he is a co-trustee, (iii) 10,120 shares
of Common Stock subject to stock options exercisable as of May 15, 1996 or
within 60 days thereafter, and (iv) 5,000 shares held by Mr. Dreyfous. Mr.
Dreyfous is the Managing General Partner of the general partner of Utah
Ventures. Percentage ownership after the Offering assumes the purchase in
the Offering by Utah Ventures of an aggregate of $70,000 of Common Stock at
an offering price of $3.50 per share. See "Underwriting." Mr. Dreyfous
disclaims beneficial ownership of the shares of Common Stock held of record
by Utah Ventures and by the trusts for the benefit of his children, except
to the extent of his pecuniary interest therein.

(8) Represents 10,120 shares of Common Stock subject to stock options
exercisable as of May 15, 1996 or within 60 days thereafter.

(9) Includes (i) with respect to Drs. Wolfe and Anderson and Messrs. Dishlip,
Dreyfous, and Holliman, the shares of Common Stock identified in footnotes
(5), (6), (7), and (8) as held by such person or subject to options
exercisable by such person as of May 15, 1996 or within 60 days thereafter,
(ii) with respect to the executive officers other than Dr. Wolfe, a total of
194,275 shares of Common Stock held by such persons or subject to options
exercisable by such persons as of May 15, 1996 or within 60 days thereafter,
and (iii) the shares of Common Stock held by Valley Ventures, L.P., Utah
Ventures, and the trusts for the benefit of Mr. Dreyfous' children.

DEBT FINANCINGS

INVESTOR NOTES

In April 1993, the Company entered into a bridge financing arrangement with
certain of its shareholders pursuant to which the Company was entitled to borrow
an aggregate of $2,460,000. During the subsequent 12 months, the Company
borrowed the full available amount in four installments. These Investor Notes
accrued interest consisting of (i) 4% on the amount of each principal borrowing,
accruing on the date of each such borrowing, (ii) 4% on the outstanding balance
on the 90th, 180th, and 270th day anniversaries of the first principal
borrowing, and (iii) 6% per annum interest on outstanding balances through the
one-year anniversary of the first principal borrowing and 9% per annum interest
thereafter. On November 1, 1994, in connection with the closing of the IPO, all
principal and accrued interest on the Investor Notes were converted to Common
Stock.

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<PAGE> 40

SUPPLEMENTAL INVESTOR NOTES

In April 1994, the Company entered into a financing agreement (the "Note
Purchase Agreement") with certain of its shareholders pursuant to which the
Company borrowed $400,000 and issued notes in exchange therefor (the
"Supplemental Investor Notes"). In June 1994, the Company and the holders of the
Supplemental Investor Notes modified the Note Purchase Agreement to enable the
Company to borrow additional amounts thereunder on the same terms. Additional
Supplemental Investor Notes were issued in the aggregate principal amount of
$800,000. On November 1, 1994, all principal and accrued interest on the
Supplemental Investor Notes was repaid with proceeds from the IPO.

BRIDGE FINANCING

On July 25, 1994, the Company consummated a financing pursuant to which the
Company issued notes in the aggregate principal amount of $1,000,000 and Bridge
Warrants to acquire an aggregate of 200,000 shares of Common Stock. Such notes
carried an interest rate of 9% per annum, were due on the fifth business day
following the closing of the IPO, and were retired with proceeds therefrom. The
Bridge Warrants are exercisable for five years after their issuance date at an
exercise price of $2.50 per share. As of May 15, 1996, Bridge Warrants covering
130,000 shares of Common Stock had been exercised. Holders of Bridge Warrants
are entitled to certain demand and piggyback registration rights with respect to
the underlying shares of Common Stock. See "Description of
Securities -- Registration Rights."

DESCRIPTION OF SECURITIES

The following statements are qualified in their entirety by reference to
the detailed provisions of the Company's charter documents, copies of which have
been heretofore filed with the Commission.

COMMON STOCK

The Company is authorized to issue 15,000,000 shares of Common Stock, of
which 5,349,198 shares were issued and outstanding at May 15, 1996 and held of
record by 104 shareholders. The record holders of validly issued and outstanding
shares of Common Stock are entitled to one vote per share on all matters to be
voted on by shareholders. Under California law (with limited exceptions not
currently applicable to the Company), cumulative voting in the election of
directors is mandatory upon notice given by a shareholder at a shareholder's
meeting at which directors are to be elected. In order to cumulate votes, a
shareholder must give notice at the meeting, prior to the voting, of the
shareholder's intention to vote cumulatively. If any one shareholder gives such
a notice, all shareholders may cumulate their votes. Cumulative voting permits
the holder of each share of stock entitled to vote in the election of directors
to cast that number of votes which equals the number of directors to be elected.
The holder may allocate all votes represented by one share to a single candidate
or may allocate those votes among as many candidates in any manner that the
holder chooses. Thus, under cumulative voting a shareholder with a significant
minority percentage of the outstanding shares of voting stock may be able to
elect one or more directors.

The holders of Common Stock are entitled to such dividends, if any, as may
be declared by the Board in its discretion out of funds legally available for
that purpose, and to participate pro rata in any distribution of the Company's
assets upon liquidation. In the event of liquidation of the Company, all assets
available for distribution are distributable among the holders of the Common
Stock according to their respective holdings.

The holders of Common Stock do not have any pre-emptive or conversion
rights, nor are there any redemption rights with respect to the Common Stock.
The outstanding shares of Common Stock are, and the shares of Common Stock being
offered hereby, when issued and paid for, will be, validly issued, fully paid,
and non-assessable and not subject to further call or assessment by the Company.

PREFERRED STOCK

The Company is authorized to issue 10,000,000 shares of Preferred Stock, of
which no shares were issued and outstanding at May 15, 1996. The Board has the
authority to issue Preferred Stock from time to time in

40
<PAGE> 41

series and to fix the number of shares of any series of Preferred Stock and to
determine the designation of any such series. The Board is also authorized to
determine or alter the rights, preferences, privileges, and restrictions granted
to or imposed upon any wholly unissued series of Preferred Stock and to increase
or decrease (but not below the amount then outstanding) the number of shares of
any such series subsequent to the issue of shares of that series. The Company
has heretofore issued 492,904 shares of convertible redeemable Series A
Preferred Stock and 6,322,291 shares of convertible redeemable Series B
Preferred Stock (collectively, the "Prior Preferred"). All outstanding shares of
Prior Preferred were converted to Common Stock in connection with the closing of
the IPO.

On December 29, 1995 the Company completed a $4.0 million ($3.6 million,
net of offering expenses) financing by issuing 4,000,000 shares of Series C
Preferred Stock to several investors in a private financing. As of May 15, 1996,
all of the shares of Series C Preferred Stock (together with accrued dividends)
had been converted to an aggregate of 1,110,329 shares of Common Stock and no
shares of Series C Preferred Stock remained outstanding.

The flexibility vested in the Company's Board to issue Preferred Stock in
one or more series can enhance the Board's bargaining capability on behalf of
the Company's shareholders in the event of a possible takeover and could, under
some circumstances, be used to render more difficult or discourage a merger,
tender offer, or proxy contest, the assumption of control by a holder of a large
block of the Company's securities, or the removal of incumbent management, even
if such a transaction were favored by the holders of the requisite number of the
then-outstanding shares, in that the rights, privileges, and preferences of one
or more series of Preferred Stock, which Preferred Stock could be privately
placed, could involve provisions as to voting, redemption, conversion, or other
rights that could deter such action. Accordingly, shareholders of the Company
might be deprived of an opportunity to consider a takeover proposal that a third
party might otherwise consider making, because the Company has a class of
Preferred Stock authorized. In addition, the issuance of Preferred Stock may
discourage bids for the Common Stock at a premium over the market price, could
adversely affect the voting rights of holders of Common Stock, and could
adversely affect the market price of the Common Stock. The Company currently
does not have any plans or commitments that would involve the issuance of shares
of its Preferred Stock.

CLASS A WARRANTS

An aggregate of 1,900,000 Class A Warrants were issued at the closing of
the IPO pursuant to a warrant agreement (the "Warrant Agreement") among the
Company, Baron, and American Stock Transfer & Trust Company (the "Warrant
Agent"), and are evidenced by warrant certificates in registered form. The
following summary is qualified in its entirety by the text of the Warrant
Agreement, a copy of which has been filed with the Commission.

Each Class A Warrant entitles the registered holder thereof to purchase one
share of Common Stock at a price of $6.25, subject to adjustment, at any time
until the close of business on September 27, 1999, unless previously redeemed.
The Class A Warrants are subject to redemption by the Company at $.05 per Class
A Warrant on 30 days' prior written notice provided that either (i) the average
closing bid price (or last sales price) of the Common Stock as reported by
Nasdaq (or on such exchange on which the Common Stock is then traded) exceeds
$9.00 per share for 20 consecutive business days ending not less than 15 days
prior to the date of the notice of redemption, or (ii) the Company shall have
obtained written consent from Baron to redeem the Class A Warrants.

The exercise price of the Class A Warrants and the number and kind of
shares of Common Stock or other securities issuable upon the exercise thereof
are subject to adjustment in certain circumstances, including any stock dividend
on the Common Stock, any subdivision, combination, or reclassification of the
Common Stock, or any distribution of rights or warrants to subscribe for or
purchase shares of Common Stock (or securities convertible into Common Stock),
assets, or evidences of indebtedness of the Company. Additionally, an adjustment
would be made upon a merger where the Company is not the surviving entity or the
sale of all or substantially all of the assets of the Company, so as to enable
warrantholders to purchase the kind and number of shares of stock or other
securities or property (including cash) receivable in such event by a holder of
the number of shares of Common Stock that might otherwise have been purchased
upon exercise of such Class A Warrant. The adjustment right described in the
foregoing sentence shall not apply to a merger or sale of assets

41
<PAGE> 42

transaction in which the consideration per share of Common Stock is at least
$10.00; in such event, the Class A Warrants shall expire upon consummation of
the merger or sale transaction. No adjustment for previously paid cash
dividends, if any, will be made upon exercise of the Class A Warrants.

The exercise price of the Class A Warrants bears no relation to any
objective criteria of value and should not be regarded as an indication of the
future market price of the securities offered hereby.

The Class A Warrants do not confer upon the holders any voting rights or
any rights as shareholders of the Company. Upon written notice to the
warrantholders, the Company has the right to reduce the exercise price or extend
the expiration date of the Class A Warrants.

The Class A Warrants may be exercised upon surrender of the Class A Warrant
certificate on or prior to the expiration date (or earlier redemption date) of
such Class A Warrants at the offices of the Warrant Agent, with the
"Subscription Form" on the reverse side of the Class A Warrant certificate
completed as indicated, accompanied by payment of the full exercise price (by
cashier's or certified check payable to the order of the Warrant Agent) for the
number of Warrants being exercised. Upon the expiration date, the Class A
Warrants will become void and of no value. So long as a market for the Class A
Warrants continues to exist, the holder may sell the Class A Warrants instead of
exercising them. There can be no assurance, however, that a market for the Class
A Warrants will continue to exist. If the Company is unable to qualify for sale
in certain states the Common Stock underlying the Class A Warrants, holders of
Class A Warrants desiring to exercise the Class A Warrants who reside in those
states will have no choice but either to sell such Class A Warrants or let them
expire.

UNITS

Each Unit consists of one share of Common Stock and one Class A Warrant.
The Common Stock and the Class A Warrant components may be traded together as
Units, but are also separately transferable.

BRIDGE WARRANTS

The terms of the Bridge Warrants are identical in all material respects to
those of the Class A Warrants except that (i) the Bridge Warrants' exercise
price per share is $2.50 and (ii) the Bridge Warrants are not subject to
redemption by the Company.

REGISTRATION RIGHTS

Upon the request of holders of 25% or more of the shares of Common Stock
acquired upon conversion of the Prior Preferred (the "Conversion Stock"), the
Company will register under the Securities Act and applicable state securities
laws any shares of Conversion Stock owned by holders thereof. Holders of
Conversion Stock shall be entitled to such demand registration rights on two
separate occasions. The Company is obligated to keep such registration statement
effective until the earlier of the date all shares registered thereunder are
sold or nine months from the effective date of the registration statement. Such
demand registration rights are subject to certain limitations in the event of
(i) the availability of Rule 144(k) for resales of Conversion Stock, (ii) the
Company's exercise of its right to delay a registration for up to 90 days upon
its written certification of certain conditions, or (iii) a substantially
contemporaneous Company-initiated registration. The expenses of both demand
registrations initiated by holders of Conversion Stock shall be borne by the
Company. Holders of Conversion Stock also have piggyback registration rights,
i.e., the right to include such shares in any registration statement that may be
filed by the Company.

The Company has granted certain demand and piggyback registration rights to
the holders of Common Stock issuable upon exercise of the Bridge Warrants. The
Company has also granted certain demand and piggyback registration rights to the
holders of the Unit Purchase Option, the units issuable upon exercise thereof,
the Common Stock and warrants included within such units, and the Common Stock
issuable upon exercise of such warrants. Furthermore, the Company has granted
certain demand and piggyback registration rights to the Representative with
respect to the Common Stock issuable upon exercise of the Representative's
Warrants. See "Underwriting."

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<PAGE> 43

TRANSFER AGENT

The transfer agent and registrar for the Common Stock and Class A Warrants
is American Stock Transfer & Trust Company.

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of the Offering, the Company will have 7,949,198 shares of
Common Stock outstanding. Of this amount, the 2,600,000 shares sold in the
Offering (plus any additional shares sold upon exercise of the Underwriters'
over-allotment option) and approximately 3,161,707 other shares will be
available for immediate sale in the public market as of the date of this
Prospectus.

Holders of 2,170,089 shares of Common Stock have agreed that they will not,
without the Representative's written consent, sell, transfer, or assign any of
such shares for a period of 180 days (the "180-day Lockup Period") commencing
upon the closing of the Offering. See "Underwriting."

Upon the expiration of the 180-day Lockup Period, approximately 2,170,089
shares of Common Stock (subject in certain cases to the volume and other
limitations of Rule 144 promulgated under the Securities Act ("Rule 144")) will
become available for sale in the public market. An additional 17,402 shares of
Common Stock will become available for sale in the public market pursuant to
Rule 144 during the twelve months following the date of this Prospectus.

In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who holds restricted shares as that term is defined
in Rule 144, including persons who may be deemed to be "affiliates" of the
Company under Rule 144, is entitled to sell within any three-month period a
number of restricted shares beneficially owned for at least two years that does
not exceed the greater of (i) one percent of the then-outstanding shares of
Common Stock or (ii) the average weekly trading volume in the Common Stock
during the four calendar weeks preceding such sale, subject to the filing of a
Form 144 with the Commission with respect to such sale. Sales under Rule 144 are
also subject to certain requirements as to the manner of sale, notice, and the
availability of current public information about the Company. However, a person
who is not an affiliate at any time during the 90-day period preceding such sale
and has beneficially owned such shares for at least three years is entitled to
sell such shares without regard to the volume or other requirements pursuant to
Rule 144(k).

In addition, the Commission has published a notice of proposed rulemaking
which, if adopted as proposed, would shorten the applicable holding periods
under Rule 144(d) and Rule 144(k) to one and two years, respectively (from the
current two and three-year periods). The Company cannot predict whether such
amendments will be adopted or the effect thereof on the trading market for its
Common Stock. The Company is unable to estimate the number of shares that will
be sold under Rule 144, since this will depend on the market price for the
Common Stock, the personal circumstances of the sellers, and other factors.

Following the expiration of the lock-up and/or restrictive periods
described above, a substantial sale of securities pursuant to Rule 144 or
otherwise could occur and might have an adverse effect on the market price of
the Common Stock.

An additional 2,350,000 shares of Common Stock (the "Underlying Registered
Stock") that may be issued upon exercise of certain warrants and options
outstanding at May 15, 1996 are the subject of a previously filed registration
statement under the Securities Act (the "Prior Registration"). The Company has
covenanted to maintain the effectiveness of the Prior Registration. Subject to
such effectiveness, all of the shares of Underlying Registered Stock, if, when,
and as issued, will be immediately eligible for sale in the public market.
Regardless of such effectiveness, the Underlying Registered Stock may become
eligible for sale in the public market pursuant to the provisions of Rule 144.
The Underlying Registered Stock comprises (i) 1,900,000 shares underlying the
Class A Warrants, (ii) 380,000 shares underlying the Unit Purchase Option and
the warrants contained therein, and (iii) 70,000 shares underlying the Bridge
Warrants. See "Risk Factors -- Adverse Consequences Associated with Substantial
Shares of Common Stock Reserved for Issuance" and "-- Substantial Number of
Shares Eligible for Future Sale; Potential Expense of Registration Rights."

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<PAGE> 44

UNDERWRITING

Subject to the terms and conditions of the Underwriting Agreement, the
underwriters named below (the "Underwriters"), for whom Cruttenden Roth
Incorporated is acting as representative, have agreed to purchase from the
Company the following respective number of shares of Common Stock:

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
-------------------------------------------------------------------------- ----------
<S> <C>
Cruttenden Roth Incorporated.............................................. 1,800,000
Auerbach Pollak & Richardson Inc. ........................................ 100,000
Commonwealth Associates................................................... 100,000
Dabney/Resnick Inc. ...................................................... 100,000
Gilford Securities Corporation............................................ 100,000
Hanifen, Imhoff Inc. ..................................................... 100,000
Josephthal Lyon & Ross Incorporated....................................... 100,000
Van Kasper & Company...................................................... 100,000
Wedbush Morgan Securities Inc. ........................................... 100,000
---------
Total........................................................... 2,600,000
=========
</TABLE>

The Underwriting Agreement provides that the Underwriters' obligations are
subject to conditions precedent and that the Underwriters are committed to
purchase all shares of Common Stock offered hereby (other than those covered by
the over-allotment option described below) if the Underwriters purchase any
shares.

The Representative has advised the Company that the Underwriters propose to
offer the shares of Common Stock directly to the public at the Price to Public
set forth on the cover page of this Prospectus, and to certain dealers at such
price less a concession not in excess of $0.13 per share. The Underwriters may
allow and such dealers may reallow a concession not in excess of $0.10 per share
to certain other dealers. After the shares of Common Stock offered hereby are
released for sale to the public, the Underwriters may change the initial Price
to Public and other selling terms. No change in such terms shall change the
amount of proceeds to be received by the Company, as set forth on the cover page
of this Prospectus.

The Company has granted to the Underwriters an option, exercisable no later
than 45 days after the date of this Prospectus, to purchase up to an aggregate
of 390,000 additional shares of Common Stock solely to cover over-allotments, if
any, at the Price to Public set forth on the cover page of this Prospectus, less
the underwriting discounts and commissions. To the extent that the Underwriters
exercise this option, each of the Underwriters will have a firm commitment to
purchase approximately the same percentage thereof that the number of shares of
Common Stock to be purchased by it shown in the above table bears to the total
number of shares of Common Stock offered hereby.

The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act.

The Company has agreed to pay the Representative a nonaccountable expense
allowance equal to one and one-half percent of the aggregate Price to Public
(including with respect to shares of Common Stock underlying the over-allotment
option, if and to the extent it is exercised) set forth on the front cover of
this Prospectus for expenses in connection with the Offering, of which the sum
of $30,000 has been paid. The Representative's expenses in excess of such
allowance will be borne by the Representative. To the extent that the expenses
of the Representative are less than such allowance, the excess may be deemed to
be compensation to the Representative.

The Company has agreed to sell to the Representative, for $208, the
Representative's Warrants to purchase up to 208,000 shares of Common Stock at an
exercise price per share equal to 120% of the Price to Public set forth on the
cover page of this Prospectus. The Representative's Warrants are exercisable for
a period of four years beginning one year from the date of this Prospectus and
are not transferable for a period of one year from the date of this Prospectus
except to officers of the Representative or any successor thereto. The

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<PAGE> 45

Representative's Warrants include a net exercise provision permitting the
holder(s) to pay the exercise price by cancellation of the exercisability of a
number of shares with a fair market value equal to the aggregate exercise price
of the Representative's Warrants then being exercised. In addition, the Company
has granted certain rights to the holders of the Representative's Warrants to
register the Representative's Warrants and the Common Stock underlying the
Representative's Warrants under the Securities Act.

The Underwriters have agreed to allocate $2,000,000 and $70,000 of the
shares offered hereby for purchase by the Travelers Companies and Utah Ventures,
respectively, who are current shareholders of the Company. See "Principal
Shareholders."

Holders of 2,170,089 shares of Common Stock have agreed that they will not
sell, directly or indirectly, without the Representative's prior written
consent, any of the shares owned by them for a period of 180 days from the
closing of the Offering. See "Shares Eligible for Future Sale." The Company has
agreed that it will not, without the prior written consent of the
Representative, purchase, sell, or otherwise dispose of any shares of Common
Stock or issue any warrants or options for a period of 12 months from the
closing of the Offering, except that the Company may grant additional options
under its existing option plans, issue shares upon the exercise of outstanding
stock options, and issue shares in connection with acquisition transactions.

In connection with this Offering, certain Underwriters and selling group
members (if any) who are qualified registered market makers on the Nasdaq
SmallCap market may engage in passive market making transactions in the Common
Stock on the Nasdaq SmallCap market in accordance with Rule 10b-6A under the
Securities Exchange Act of 1934 during the two business day period before
commencement of sales in this Offering. The passive market making transactions
must comply with applicable volume and price limits and be identified as such.
In general, a passive market maker may display its bid at a price not in excess
of the highest independent bid for the security. If all independent bids are
lowered below the passive market maker's bid, however, such bid must then be
lowered when certain purchase limits are exceeded. Net purchases by a passive
market maker on each day are generally limited to a specified percentage of the
passive market making average daily trading volume in the Common Stock during a
price 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 Representative has advised the Company that the Underwriters do not
intend to confirm sales to any accounts over which they exercise discretionary
authority in excess of five percent of the Common Stock offered hereby.

LEGAL MATTERS

The validity of the Common Stock offered hereby will be passed upon for the
Company by Arter & Hadden, Irvine, California. Certain legal matters will be
passed upon for the Underwriters by Brobeck, Phleger & Harrison LLP, Newport
Beach, California.

EXPERTS

The consolidated financial statements of the Company as of December 31,
1994 and December 31, 1995 and for each of the three years in the period ended
December 31, 1995, appearing in this Prospectus and Registration Statement, have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon appearing elsewhere herein and in the Registration Statement and
are included in reliance upon such report given upon the authority of such firm
as experts in accounting and auditing.

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<PAGE> 46

ADDITIONAL INFORMATION

The Company has filed with the Commission a Registration Statement, of
which this Prospectus constitutes a part, under the Securities Act with respect
to the shares of Common Stock offered hereby. This Prospectus omits certain
information contained in the Registration Statement, and reference is made to
the Registration Statement and the exhibits and schedules thereto for further
information with respect to the Company and the Common Stock offered hereby.
Statements contained herein concerning the provisions of any documents are not
necessarily complete, and in each instance reference is made to the copy of such
document filed as an exhibit to the Registration Statement. Each such statement
is qualified in its entirety by such reference.

The Company is subject to the information requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and in accordance
therewith files reports, proxy statements, and other information with the
Commission. Reports, proxy statements, and other information filed by the
Company with the Commission pursuant to the Exchange Act and the Registration
Statement, including exhibits and schedules filed therewith, may be inspected
without charge at the public reference facilities maintained by the Commission
at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549
and at the regional offices of the Commission located at 7 World Trade Center,
Suite 1300, New York, New York 10048 and Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of such materials may be
obtained from the Public Reference Section of the Commission, Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and its public
reference facilities in New York, New York and Chicago, Illinois, at prescribed
rates. The Common Stock of the Company is quoted on the Nasdaq SmallCap Market.
Reports and other information concerning the Company may be inspected at the
National Association of Securities Dealers, Inc. at 9513 Key West Avenue,
Rockville, Maryland 20850.

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<PAGE> 47

VOXEL
(A DEVELOPMENT STAGE COMPANY)

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors......................................................... F-2
Consolidated Financial Statements
Consolidated Balance Sheets.......................................................... F-3
Consolidated Statements of Operations................................................ F-4
Consolidated Statements of Convertible Redeemable Preferred Stock and Shareholders'
Equity (Deficit).................................................................. F-5
Consolidated Statements of Cash Flows................................................ F-8
Notes to Consolidated Financial Statements............................................. F-9
</TABLE>

F-1
<PAGE> 48

REPORT OF INDEPENDENT AUDITORS

The Board of Directors
Voxel

We have audited the accompanying consolidated balance sheets of Voxel (a
development stage company) as of December 31, 1994 and 1995, and the related
consolidated statements of operations, convertible redeemable preferred stock
and common shareholders' equity (deficit), and cash flows for each of the three
years in the period ended December 31, 1995 and for the period from April 15,
1988 (inception) to December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Voxel (a
development stage company) at December 31, 1994 and 1995, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1995 and for the period from April 15, 1988
(inception) to December 31, 1995, in conformity with generally accepted
accounting principles.

ERNST & YOUNG LLP

Orange County, California
February 12, 1996

F-2
<PAGE> 49

VOXEL
(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED BALANCE SHEETS

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------- MARCH 31,
1994 1995 1996
----------- ------------ ------------
<S> <C> <C> <C>
(UNAUDITED)
Currents assets:
Cash and cash equivalents....................... $ 612,801 $ 4,398,193 $ 174,821
Short-term investments.......................... 5,094,946 -- 2,522,509
Other current assets............................ 27,776 33,751 35,580
----------- ------------ ------------
Total current assets.............................. 5,735,523 4,431,944 2,732,910
Property and equipment:
Furniture and equipment......................... 916,099 995,861 1,054,082
Leasehold improvements.......................... 200,935 200,935 222,473
----------- ------------ ------------
1,117,034 1,196,796 1,276,555
Less accumulated depreciation and
amortization................................. (463,384) (671,065) (720,874)
----------- ------------ ------------
653,650 525,731 555,681
Other assets (net of accumulated amortization of
$57,226 in 1994, $65,573 in 1995, and $67,661 in
1996)........................................... 30,311 21,964 19,876
----------- ------------ ------------
Total assets...................................... $ 6,419,484 $ 4,979,639 $ 3,308,467
=========== ============ ============

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
Accounts payable and accrued expenses........... $ 184,347 $ 424,204 $ 307,567
Short-term note payable......................... -- 104,500 --
Current portion of lease obligation............. 142,994 81,276 79,308
----------- ------------ ------------
Total current liabilities......................... 327,341 609,980 386,875
Long-term lease obligation........................ 108,392 27,964 11,034
Commitments
Shareholders' equity:
Convertible Series C preferred stock,
no par value:
Authorized shares -- 4,000,000;
Issued and outstanding shares -- none in
1994, 4,000,000 in 1995, and
1,666,668 in 1996.......................... -- 3,600,000 1,500,001
Common stock, no par value:
Authorized shares -- 15,000,000;
Issued and outstanding shares -- 4,099,017
in 1994, 4,228,869 in 1995, and 4,956,817
in 1996.................................... 15,977,587 16,312,571 18,446,531
Deficit accumulated during the development
stage........................................ (9,963,836) (15,540,876) (17,005,974)
Notes receivable from shareholders.............. (30,000) (30,000) (30,000)
----------- ------------ ------------
Total shareholders' equity........................ 5,983,751 4,341,695 2,910,558
----------- ------------ ------------
Total liabilities and shareholders' equity........ $ 6,419,484 $ 4,979,639 $ 3,308,467
=========== ============ ============
</TABLE>

See accompanying notes.

F-3
<PAGE> 50

VOXEL
(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
APRIL 15, 1988 APRIL 15, 1988
(DATE OF THREE MONTHS ENDED (DATE OF
YEAR ENDED DECEMBER 31, INCEPTION) TO MARCH 31, INCEPTION) TO
--------------------------------------- DECEMBER 31, ------------------------- MARCH 31,
1993 1994 1995 1995 1995 1996 1996
----------- ----------- ----------- -------------- ----------- ----------- --------------
-------------- (UNAUDITED)-------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenues............... $ -- $ -- $ -- $ -- $ -- $ -- $ --
Costs and expenses:
Research and
development............ 1,190,959 2,923,938 3,618,857 9,128,770 972,569 1,004,821 10,133,591
General and
administrative......... 1,182,637 1,484,002 2,123,918 5,999,046 413,355 496,875 6,495,921
----------- ----------- ----------- -------------- ----------- ----------- --------------
2,373,596 4,407,940 5,742,775 15,127,816 1,385,924 1,501,696 16,629,512
----------- ----------- ----------- -------------- ----------- ----------- --------------
Loss from operations..... (2,373,596) (4,407,940) (5,742,775) (15,127,816) (1,385,924) (1,501,696) (16,629,512)
Interest expense......... (233,532) (407,449) (33,069) (801,056) (10,417) (4,225) (805,281)
Interest income.......... 10,020 58,613 198,804 387,996 75,632 40,823 428,819
----------- ----------- ----------- -------------- ----------- ----------- --------------
Net loss................... $(2,597,108) $(4,756,776) $(5,577,040) $ (15,540,876) $(1,320,709) $(1,465,098) $ (17,005,974)
============ ============ ============ ============= ============ ============ =============
Pro forma net loss......... $(2,419,575) $(4,480,789)
============ ============
Net loss per share......... $ (1.33) $ (0.32) $ (0.33)
============ ============ ============
Pro forma net loss per
share.................... $ (1.18) $ (1.67)
============ ============
Shares used in computing
net loss per share....... 2,043,842 2,677,788 4,183,355 4,108,794 4,499,303
============ ============ ============ ============ ============
</TABLE>

See accompanying notes.

F-4
<PAGE> 51

VOXEL
(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF CONVERTIBLE REDEEMABLE PREFERRED STOCK
AND SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
COMMON
SERIES A PREFERRED SERIES B PREFERRED SERIES C PREFERRED STOCK
------------------- ------------------------ ----------------------- ---------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES
-------- -------- ---------- ----------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of common stock at $.26 per
share in exchange for notes............ -- $ -- -- $ -- -- $ -- 38,870
Issuance of common stock at $.26 per
share in exchange for shares of
Holoplex stock and cancellation of
indebtedness of $35,454 .............. -- -- -- -- -- -- 349,831
Net loss................................ -- -- -- -- -- -- --
-------- -------- ---------- ----------- ---------- ---------- ---------
Balance at December 31, 1988............ -- -- -- -- -- -- 388,701
Repurchase of common stock for cash at
$.26 per share...................... -- -- -- -- -- -- (97,175)
Net loss.............................. -- -- -- -- -- -- --
-------- -------- ---------- ----------- ---------- ---------- ---------
Balance at December 31, 1989............ -- -- -- -- -- -- 291,526
Issuance of Series A preferred stock
at $.10 per share in exchange for
cash of $16,000 and cancellation of
indebtedness of $33,081............. 490,801 49,081 -- -- -- -- --
Issuance of Series A preferred stock
at $.10 per share in exchange for
cancellation of accrued interest of
$210................................ 2,103 210 -- -- -- -- --
Net loss.............................. -- -- -- -- -- -- --
-------- -------- ---------- ----------- ---------- ---------- ---------
Balance at December 31, 1990............ 492,904 49,291 -- -- -- -- 291,526
Issuance of Series B preferred stock
at $.10 per share in exchange for
cancellation of indebtedness........ -- -- 87,500 8,750 -- -- --
Issuance of common stock at $.26 per
share in exchange for notes
receivable.......................... -- -- -- -- -- -- 77,740
Issuance of Series B preferred stock
at $.60 per share in exchange for
cash of $3,130,000 and cancellation
of indebtedness and related interest
of $610,875......................... -- -- 6,234,791 3,740,875 -- -- --
Repurchase of common stock at $.26 per
share for cash of $3,523 and
cancellation of advances receivable
of $17,727.......................... -- -- -- -- -- -- (82,599)
Contribution to capital -- forgiveness
of indebtedness by shareholders..... -- -- -- -- -- -- --
Net loss.............................. -- -- -- -- -- -- --
-------- -------- ---------- ----------- ---------- ---------- ---------
Balance at December 31, 1991............ 492,904 49,291 6,322,291 3,749,625 -- -- 286,667
Net loss.............................. -- -- -- -- -- -- --
-------- -------- ---------- ----------- ---------- ---------- ---------
Balance at December 31, 1992............ 492,904 49,291 6,322,291 3,749,625 -- -- 286,667
Net loss.............................. -- -- -- -- -- -- --
-------- -------- ---------- ----------- ---------- ---------- ---------
Balance at December 31, 1993............ 492,904 49,291 6,322,291 3,749,625 -- -- 286,667

<CAPTION>
DEFICIT NOTES
ACCUMULATED RECEIVABLE
DURING THE FROM
DEVELOPMENT SHARE-
AMOUNT STAGE HOLDERS TOTAL
----------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
Issuance of common stock at $.26 per
share in exchange for notes............ $ 10,000 $ -- $ (10,000) $ --
Issuance of common stock at $.26 per
share in exchange for shares of
Holoplex stock and cancellation of
indebtedness of $35,454 .............. 90,000 -- -- 90,000
Net loss................................ -- (142,845) -- (142,845)
----------- ------------ ---------- -----------
Balance at December 31, 1988............ 100,000 (142,845) (10,000) (52,845)
Repurchase of common stock for cash at
$.26 per share...................... (25,000) -- -- (25,000)
Net loss.............................. -- (253,632) -- (253,632)
----------- ------------ ---------- -----------
Balance at December 31, 1989............ 75,000 (396,477) (10,000) (331,477)
Issuance of Series A preferred stock
at $.10 per share in exchange for
cash of $16,000 and cancellation of
indebtedness of $33,081............. -- -- -- --
Issuance of Series A preferred stock
at $.10 per share in exchange for
cancellation of accrued interest of
$210................................ -- -- -- --
Net loss.............................. -- (238,560) -- (238,560)
----------- ------------ ---------- -----------
Balance at December 31, 1990............ 75,000 (635,037) (10,000) (570,037)
Issuance of Series B preferred stock
at $.10 per share in exchange for
cancellation of indebtedness........ -- -- -- --
Issuance of common stock at $.26 per
share in exchange for notes
receivable.......................... 20,000 -- (20,000) --
Issuance of Series B preferred stock
at $.60 per share in exchange for
cash of $3,130,000 and cancellation
of indebtedness and related interest
of $610,875......................... -- -- -- --
Repurchase of common stock at $.26 per
share for cash of $3,523 and
cancellation of advances receivable
of $17,727.......................... (21,250) -- -- (21,250)
Contribution to capital -- forgiveness
of indebtedness by shareholders..... 20,000 -- -- 20,000
Net loss.............................. -- (513,771) -- (513,771)
----------- ------------ ---------- -----------
Balance at December 31, 1991............ 93,750 (1,148,808) (30,000) (1,085,058)
Net loss.............................. -- (1,461,144) -- (1,461,144)
----------- ------------ ---------- -----------
Balance at December 31, 1992............ 93,750 (2,609,952) (30,000) (2,546,202)
Net loss.............................. -- (2,597,108) -- (2,597,108)
----------- ------------ ---------- -----------
Balance at December 31, 1993............ 93,750 (5,207,060) (30,000) (5,143,310)
</TABLE>

F-5
<PAGE> 52

VOXEL
(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF CONVERTIBLE REDEEMABLE PREFERRED STOCK
AND SHAREHOLDERS' EQUITY (DEFICIT) -- (CONTINUED)
<TABLE>
<CAPTION>
COMMON
SERIES A PREFERRED SERIES B PREFERRED SERIES C PREFERRED STOCK
------------------- ------------------------ ----------------------- ---------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES
-------- -------- ---------- ----------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993............ 492,904 $ 49,291 6,322,291 $ 3,749,625 -- $ -- 286,667
Stock option exercise at $.51 per
share............................... -- -- -- -- -- -- 834
Amortization of deferred
compensation........................ -- -- -- -- -- -- --
Conversion of Series A preferred stock
to common stock at the rate of
5.145346 shares of preferred to one
share of common..................... (492,904) (49,291) -- -- -- -- 95,796
Conversion of Series B preferred stock
to common stock at the rate of
5.145346 shares of preferred to one
share of common..................... -- -- (6,322,291) (3,749,625) -- -- 1,228,740

<CAPTION>
DEFICIT NOTES
COMMON ACCUMULATED RECEIVABLE
STOCK DURING THE FROM
----------- DEVELOPMENT SHARE-
AMOUNT STAGE HOLDERS TOTAL
----------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
Balance at December 31, 1993............ $ 93,750 $ (5,207,060) $ (30,000) $(5,143,310)
Stock option exercise at $.51 per
share............................... 429 -- -- 429
Amortization of deferred
compensation........................ 117,242 -- -- 117,242
Conversion of Series A preferred stock
to common stock at the rate of
5.145346 shares of preferred to one
share of common..................... 49,291 -- -- 49,291
Conversion of Series B preferred stock
to common stock at the rate of
5.145346 shares of preferred to one
share of common..................... 3,749,625 -- -- 3,749,625

<CAPTION>
COMMON
SERIES A PREFERRED SERIES B PREFERRED SERIES C PREFERRED STOCK
------------------- ------------------------ ----------------------- ---------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES
-------- -------- ---------- ----------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>

Issuance of 1,900,000 Units at $5.50
per Unit in initial public offering
for cash of $10,400,005 and
cancellation of indebtedness of
$49,995, net of underwriting
discounts and commissions and
offering expenses................... -- -- -- -- -- -- 1,900,000
Issuance of unit purchase option for
$100................................ -- -- -- -- -- -- --
Conversion of promissory notes
($2,460,000 of principal and
$453,520 of interest) to common
stock at the rate of $5.00 per
share............................... -- -- -- -- -- -- 582,704
Issuance of common stock in payment
for services totaling $21,380....... -- -- -- -- -- 4,276
Net loss.............................. -- -- -- -- -- -- --
-------- -------- ---------- ----------- ---------- ---------- ---------
Balance at December 31, 1994............ -- -- -- -- -- -- 4,099,017
Amortization of deferred
compensation........................ -- -- -- -- --
Bridge Warrant exercise of 120,000
shares at $2.50 per share........... -- -- -- -- -- -- 120,000
Stock option exercise at $.51 per
share............................... -- -- -- -- -- -- 6,139
Issuance of common stock in payment
for services totaling $9,000........ -- -- -- -- -- -- 1,143
Stock option exercise at $1.03 per
share............................... -- -- -- -- -- -- 2,570
Issuance of Series C preferred stock
at $1.00 per share, net of
underwriting commissions and
expenses............................ -- -- -- -- 4,000,000 3,600,000 --
Net loss.............................. -- -- -- -- -- -- --
-------- -------- ---------- ----------- ---------- ---------- ---------
Balance at December 31, 1995............ -- -- -- -- 4,000,000 3,600,000 4,228,869

<CAPTION>
DEFICIT NOTES
COMMON ACCUMULATED RECEIVABLE
STOCK DURING THE FROM
----------- DEVELOPMENT SHARE-
AMOUNT STAGE HOLDERS TOTAL
----------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
Issuance of 1,900,000 Units at $5.50
per Unit in initial public offering
for cash of $10,400,005 and
cancellation of indebtedness of
$49,995, net of underwriting
discounts and commissions and
offering expenses................... 9,032,250 -- -- 9,032,250
Issuance of unit purchase option for
$100................................ 100 -- -- 100
Conversion of promissory notes
($2,460,000 of principal and
$453,520 of interest) to common
stock at the rate of $5.00 per
share............................... 2,913,520 -- -- 2,913,520
Issuance of common stock in payment
for services totaling $21,380....... 21,380 -- -- 21,380
Net loss.............................. -- (4,756,776) -- (4,756,776)
----------- ------------ ---------- -----------
Balance at December 31, 1994............ 15,977,587 (9,963,836) (30,000) 5,983,751
Amortization of deferred
compensation........................ 20,205 -- -- 20,205
Bridge Warrant exercise of 120,000
shares at $2.50 per share........... 300,000 -- -- 300,000
Stock option exercise at $.51 per
share............................... 3,131 -- -- 3,131
Issuance of common stock in payment
for services totaling $9,000........ 9,000 -- -- 9,000
Stock option exercise at $1.03 per
share............................... 2,648 -- -- 2,648
Issuance of Series C preferred stock
at $1.00 per share, net of
underwriting commissions and
expenses............................ -- -- -- 3,600,000
Net loss.............................. -- (5,577,040) -- (5,577,040)
----------- ------------ ---------- -----------
Balance at December 31, 1995............ 16,312,571 (15,540,876) (30,000) 4,341,695

</TABLE>

F-6
<PAGE> 53

VOXEL
(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF CONVERTIBLE REDEEMABLE PREFERRED STOCK
AND SHAREHOLDERS' EQUITY (DEFICIT) -- (CONTINUED)
<TABLE>
<CAPTION>
COMMON
SERIES A PREFERRED SERIES B PREFERRED SERIES C PREFERRED STOCK
------------------- ------------------------ ----------------------- ---------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES
-------- -------- ---------- ----------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995............ -- $ -- -- $ -- 4,000,000 $3,600,000 4,228,869
Amortization of deferred compensation
(unaudited)......................... -- -- -- -- -- -- --
Bridge warrant exercise of 10,000
shares at $2.50 per share
(unaudited)......................... -- -- -- -- -- -- 10,000
Conversion of Series C preferred stock
to common stock (unaudited)......... -- -- -- -- (2,333,332) (2,099,999) 717,948
Net loss (unaudited).................. -- -- -- -- -- -- --
-------- -------- --------- ----------- ---------- ---------- ---------
Balance at March 31, 1996 (unaudited)... -- $ -- -- $ -- 1,666,668 $1,500,001 4,956,817
======== ======== ========= =========== ========== ========== =========

<CAPTION>
DEFICIT NOTES
COMMON ACCUMULATED RECEIVABLE
STOCK DURING THE FROM
----------- DEVELOPMENT SHARE-
AMOUNT STAGE HOLDERS TOTAL
----------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
Balance at December 31, 1995............ $16,312,571 $(15,540,876) $ (30,000) $ 4,341,695
Amortization of deferred compensation
(unaudited)......................... 8,961 -- -- 8,961
Bridge warrant exercise of 10,000
shares at $2.50 per share
(unaudited)......................... 25,000 -- -- 25,000
Conversion of Series C preferred stock
to common stock (unaudited)......... 2,099,999 -- -- --
Net loss (unaudited).................. -- (1,465,098) -- (1,465,098)
----------- ------------ ---------- -----------
Balance at March 31, 1996 (unaudited)... $18,446,531 $(17,005,974) $ (30,000) $ 2,910,558
=========== ============ ========= ===========

</TABLE>

See accompanying notes.

F-7
<PAGE> 54

VOXEL
(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE
MONTHS
ENDED
MARCH 31,
PERIOD FROM -----------
APRIL 15, 1988 1995
YEAR ENDED DECEMBER 31, (DATE OF INCEPTION) -----------
-------------------------------------------- TO DECEMBER 31,
1993 1994 1995 1995 (UNAUDITED)
----------- ------------ ----------- ------------------- -----------
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss................................... $(2,597,108) $ (4,756,776) $(5,577,040) $ (15,540,876) $(1,320,709)
Adjustments to reconcile net loss to cash
used in operating activities:
Depreciation.............................. 138,988 188,298 207,681 671,065 40,499
Amortization.............................. 8,754 8,348 8,347 65,573 2,088
Amortization of deferred compensation..... -- 138,622 20,205 158,827 --
Change in operating assets and
liabilities:
Other current assets.................... (25,995) 9,642 (5,975) (61,478) 10,325
Accounts payable and accrued expenses... (4,769) 58,121 248,857 582,960 (27,901)
Short-term note payable................. -- -- 104,500 104,500 --
----------- ------------ ----------- ------------- -----------
Net cash used in operating activities...... (2,480,130) (4,353,745) (4,993,425) (14,019,429) (1,295,698)
INVESTING ACTIVITIES
Purchases of property and equipment........ (375,409) (132,702) (79,762) (1,037,788) (23,905)
Increase in other assets................... -- -- -- (32,992) --
Decrease (increase) in short-term
investments............................... -- (4,969,946) 5,094,946 -- 1,260,564
----------- ------------ ----------- ------------- -----------
Net cash provided by (used in) investing
activities................................ (375,409) (5,102,648) 5,015,184 (1,070,780) 1,236,659
FINANCING ACTIVITIES
Sale of common stock, net of registration
costs..................................... -- 8,982,684 305,779 9,259,940 50,000
Sale of unit purchase option............... -- 100 -- 100 --
Increase in notes payable.................. 1,857,075 3,256,445 -- 5,682,706 --
Payments on notes payable.................. -- (2,150,005) -- (2,150,577) --
Proceeds from issuance of preferred stock,
net of offering costs..................... -- -- 3,600,000 6,746,000 --
Proceeds from sale/leaseback transaction... 142,945 105,262 -- 406,104 --
Payments on capital lease obligation....... (100,646) (160,233) (142,146) (455,871) (70,598)
----------- ------------ ----------- ------------- -----------
Net cash provided by financing
activities................................ 1,899,374 10,034,253 3,763,633 19,488,402 (20,598)
----------- ------------ ----------- ------------- -----------
Net increase (decrease) in cash and cash
equivalents............................... (956,165) 577,860 3,785,392 4,398,193 (79,637)
Cash and cash equivalents at the beginning
of period................................. 991,106 34,941 612,801 -- 612,801
----------- ------------ ----------- ------------- -----------
Cash and cash equivalents at end of
period.................................... $ 34,941 $ 612,801 $ 4,398,193 $ 4,398,193 $ 533,164
=========== ============ =========== ============= ===========
Cash paid for interest..................... $ 56,457 $ 70,185 $ 33,069 $ 190,489 $ 10,417
=========== ============ =========== ============= ===========
Cash paid (refund received) for income
taxes..................................... $ 3,620 $ (2,000) $ 800 $ 5,750 $ 800
=========== ============ =========== ============= ===========
SUPPLEMENTAL DISCLOSURE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Issuance of common stock in exchange for
cancellation of indebtedness.............. $ -- $ 2,963,515 $ -- $ 2,998,969 $ --
Issuance of Series A preferred stock in
exchange for cancellation of
indebtedness.............................. $ -- $ -- $ -- $ 33,291 $ --
Issuance of Series B preferred stock in
exchange for cancellation of
indebtedness.............................. $ -- $ -- $ -- $ 619,625 $ --
Conversion of Series A preferred stock to
common stock.............................. $ -- $ 49,291 $ -- $ 49,291 $ --
Conversion of Series B preferred stock to
common stock.............................. $ -- $ 3,749,625 $ -- $ 3,749,625 $ --
Conversion of Series C preferred stock to
common stock.............................. $ -- $ -- $ -- $ -- $ 2,099,989
Forgiveness of indebtedness by
shareholders.............................. $ -- $ -- $ -- $ 20,000 $ --
Capital lease transaction for equipment.... $ 3,871 $ -- $ -- $ 260,710 $ --
Issuance of common stock in exchange for
cancellation of payable................... $ -- $ -- $ 9,000 $ 9,000 $ --

PERIOD FROM
THREE MONTHS ENDED APRIL 15, 1988
MARCH 31, (DATE OF INCEPTION)
1996 TO MARCH 31, 1996
------------------ -------------------
------------(UNAUDITED)-------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss................................... $(1,465,098) $ (17,005,974)
Adjustments to reconcile net loss to cash
used in operating activities:
Depreciation.............................. 49,809 720,874
Amortization.............................. 2,088 67,661
Amortization of deferred compensation..... 8,961 167,788
Change in operating assets and
liabilities:
Other current assets.................... (1,829) (63,307)
Accounts payable and accrued expenses... (116,637) 466,323
Short-term note payable................. (104,500) --
----------- ------------
Net cash used in operating activities...... (1,627,206) (15,646,635)
INVESTING ACTIVITIES
Purchases of property and equipment........ (79,759) (1,117,547)
Increase in other assets................... -- (32,992)
Decrease (increase) in short-term
investments............................... (2,522,509) (2,522,509)
----------- ------------
Net cash provided by (used in) investing
activities................................ (2,602,268) (3,673,048)
FINANCING ACTIVITIES
Sale of common stock, net of registration
costs..................................... 25,000 9,284,940
Sale of unit purchase option............... -- 100
Increase in notes payable.................. -- 5,682,706
Payments on notes payable.................. -- (2,150,577)
Proceeds from issuance of preferred stock,
net of offering costs..................... -- 6,746,000
Proceeds from sale/leaseback transaction... -- 406,104
Payments on capital lease obligation....... (18,898) (474,769)
----------- ------------
Net cash provided by financing
activities................................ 6,102 19,494,504
----------- ------------
Net increase (decrease) in cash and cash
equivalents............................... (4,223,372) 174,821
Cash and cash equivalents at the beginning
of period................................. 4,398,193 --
----------- ------------
Cash and cash equivalents at end of
period.................................... $ 174,821 $ 174,821
=========== =============
Cash paid for interest..................... $ 4,225 $ 194,714
=========== =============
Cash paid (refund received) for income
taxes..................................... $ 800 $ 6,550
=========== =============
SUPPLEMENTAL DISCLOSURE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Issuance of common stock in exchange for
cancellation of indebtedness.............. $ -- $ 2,998,969
Issuance of Series A preferred stock in
exchange for cancellation of
indebtedness.............................. $ -- $ 33,291
Issuance of Series B preferred stock in
exchange for cancellation of
indebtedness.............................. $ -- $ 619,625
Conversion of Series A preferred stock to
common stock.............................. $ -- $ 49,291
Conversion of Series B preferred stock to
common stock.............................. $ -- $ 3,749,625
Conversion of Series C preferred stock to
common stock.............................. $ 3,099,999
Forgiveness of indebtedness by
shareholders.............................. $ -- $ 20,000
Capital lease transaction for equipment.... $ -- $ 260,710
Issuance of common stock in exchange for
cancellation of payable................... $ -- $ 9,000
</TABLE>

See accompanying notes.

F-8
<PAGE> 55

VOXEL

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SIGNIFICANT ACCOUNTING POLICIES

Description of Business

Voxel (the "Company") was incorporated in the State of California on April
15, 1988. The Company is developing a system for producing and viewing
volumetric holograms which will interface with existing medical scanning
equipment and yield authentic three-dimensional images.

Basis of Presentation

The accompanying consolidated financial statements have been prepared
assuming the Company will continue to operate as a going concern. The Company
has lost approximately $2.6 million, $4.8 million, and $5.6 million in 1993,
1994, and 1995, respectively, and has an accumulated deficit of approximately
$15.5 million at December 31, 1995. The Company lost approximately $1.5 million
in the first quarter of 1996 and has an accumulated deficit of approximately
$17.0 million at March 31, 1996 (unaudited). The Company's operations have
mainly consisted of research and development, marketing and capital raising
activities. The Company has not completed the development of its products.
Through December 31, 1995, the Company has financed the development of its
products primarily through the issuance of approximately $7.4 million ($6.7
million net of underwriting commissions and offering expenses) in preferred
stock, approximately $3.0 million in common stock in exchange for cancellation
of indebtedness, and approximately $10.4 million ($9.0 million net of
underwriting commissions and offering expenses) in units (each consisting of a
share of common stock and a warrant to purchase an additional share of common
stock). The units were sold in the Company's initial public offering.

Ultimately, the Company's success will be dependent upon its ability to
achieve profitable operations. Management's plans include the successful
completion of the development, production, and marketing of its products,
achieving profitable operations and obtaining additional financing through the
public and private placement markets as needed. The Company believes that
available cash will be sufficient to meet the Company's operating expenses and
capital requirements for the first three quarters of 1996. However, the Company
will require additional funding on one or more occasions in order to achieve its
operating objectives. The delay in manufacturing of initial production units has
increased the Company's requirements for capital. The amount and timing of the
Company's future capital requirements will depend upon many factors, including
progress of the Company's research and development and the extent and timing of
acceptance of the Company's products. There can be no assurance that any
additional financing will be available to the Company on acceptable terms, or at
all, when required by the Company. In the event the Company is unable to obtain
additional funding in 1996, management will reduce or postpone certain product
development and marketing activities in order to maintain cash liquidity through
the fourth quarter of 1996.

Interim Financial Information

The consolidated financial statements as of March 31, 1996 and for the
three-month periods ended March 31, 1995 and 1996 are unaudited but include all
adjustments, (consisting only of normal recurring adjustments) that the Company
considers necessary for a fair presentation of its consolidated financial
position, operating results, and cash flows. Results for interim periods are not
necessarily indicative of results to be expected for the entire year.

F-9
<PAGE> 56

VOXEL

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Investments

Effective January 1, 1994, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 115, Accounting for Certain Investments in
Debt and Equity Securities. The adoption did not have a significant impact on
the Company's consolidated financial statements. Management determines the
appropriate classification of such securities at the time of purchase and
reevaluates such classification as of each balance sheet date. Based on its
intent, the Company's investments are classified as available-for-sale and are
carried at fair value, with unrealized gains and losses, net of tax, reported as
a separate component of shareholders' equity. The investments are adjusted for
amortization of premiums and discounts to maturity and such amortization is
included in interest income. Short-term investments held by the Company have
consisted of certificates of deposit, U.S. government securities, and commercial
paper. As of December 31, 1994 and 1995, there were no material gross unrealized
gains or losses as the carrying value of the portfolio approximated fair value.
Gross unrealized gains and losses on sales of securities for the years ended
December 31, 1994 and 1995, were not material. The cost of securities sold is
based on the specific identification method.

Long-Lived Assets

The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of" ("SFAS No. 121") in March
1995. The Company will adopt SFAS No. 121 during 1996. Such adoption will not
have a material effect on the Company's consolidated results of operations or
financial position.

Stock Option Plans

The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS
No. 123") in October 1995. SFAS No. 123 establishes financial accounting and
reporting standards for stock-based compensation plans and to transactions in
which an entity issues its equity instruments to acquire goods and services from
nonemployees. The new accounting standards prescribed by SFAS No. 123 are
optional, and the Company may continue to account for its plans under previous
accounting standards. The Company does not expect to adopt the new accounting
standards, consequently, SFAS No. 123 will not have an impact on the Company's
consolidated results of operations or financial position. However, appropriate
pro forma disclosures will be made in 1996.

Concentration of Credit Risk

Financial instruments which potentially expose the Company to concentration
of credit risk consist primarily of cash and short-term investments. The Company
maintains its cash and short-term investments with one major bank and one major
securities firm. At December 31, 1994 and December 31, 1995, the Company had
cash totaling $49,622 and $0, respectively, in excess of Federal Deposit
Insurance Corporation insurance limits. At December 31, 1994, the Company had
cash and cash equivalents totaling $488,172 in excess of Securities Investors
Protection Corporation ("SIPC") limits and short-term investments totaling
$4,520,870 in excess of SIPC limits. Also, at December 31, 1995 the Company had
cash and cash equivalents totaling $4,268,533 in excess of SIPC limits.

Stock Split

On June 17, 1994, the Company's Board of Directors approved a
one-for-5.145346 reverse stock split of its common stock, which became effective
on June 24, 1994. Unless otherwise indicated, the accompanying consolidated
financial statements have been adjusted retroactively to reflect the stock
split.

F-10
<PAGE> 57

VOXEL

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Consolidation

The accompanying consolidated financial statements include the accounts of
the Company and Holoplex Systems, an inactive subsidiary chartered in the United
Kingdom. All significant intercompany accounts and transactions have been
eliminated.

Cash and Cash Equivalents

The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.

Property and Equipment

Property and equipment are stated at cost. Depreciation is provided using
the straight-line method over the estimated useful life of the property or
equipment which is from five to seven years.

Other Assets

Other assets include patent rights which are being amortized on a
straight-line basis over their estimated useful life of ten years.

Per Share Information

Net loss per share has been calculated using the weighted average number of
shares of common stock outstanding.

Pro forma net loss per share is computed using: (1) the weighted average
number of shares of common stock outstanding; (2) the dilutive effects of common
equivalent shares from stock options and warrants; (3) pursuant to the
requirements of the Securities and Exchange Commission (the "SEC"), common
equivalent shares issued during the twelve-month period prior to the initial
public offering, whether dilutive or antidilutive, are presumed to have been
issued in contemplation of the public offering and have been included in the
calculation as if they were outstanding for all periods prior to the initial
public offering (using the treasury stock method for stock options and warrants
and the initial public offering price to be allocated to the common stock
portion of the Unit of $5.00 per share); (4) the pro forma effect of conversion
of all outstanding shares of Series A and Series B convertible redeemable
preferred stock into common stock which occurred upon the closing of the
Company's initial public offering of securities; and (5) the pro forma effect of
conversion of convertible subordinated notes payable to shareholders into common
stock, determined using the if-converted method, which occurred upon the closing
of the Company's initial public offering of securities. Additionally, net loss
is adjusted for the related interest expense incurred during the period.

Supplemental pro forma net loss per share is computed based on the number
of shares used to compute pro forma earnings per share, as described above,
adjusted to give effect to the issuance of common shares to retire amounts
outstanding on the Company's notes payable to shareholders at the beginning of
the period. Additionally, net loss is adjusted for the related interest expense
incurred during the period.

Supplemental pro forma net loss per share is as follows:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1994
-----------------
<S> <C>
Supplemental pro forma net loss per share.................... $(1.55)
=========
Number of shares used in computing supplemental pro forma net
loss per share............................................. 2,842,288
=========
</TABLE>

F-11
<PAGE> 58

VOXEL

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. CONVERTIBLE PREFERRED STOCK

On December 29, 1995 the Company completed a $4.0 million ($3.6 million,
net of offering expenses) financing by issuing 4,000,000 shares of Series C
convertible preferred stock (the "Series C Stock") to several institutional
investors in a private financing.

The Series C Stock carries an 8% annual dividend payable only in common
stock at the time of conversion, a liquidation preference for a period of 105
days after the initial issuance date of Series C Stock (the "Issuance Date"),
and voting rights as required by law. Each holder of Series C Stock may convert
its shares into common stock as follows: one-third of such holder's shares may
be converted on or after 45 days from the Issuance Date, an additional one-third
on or after 75 days from the Issuance Date, and the final one-third, on or after
105 days from the Issuance Date. The conversion price of the Series C Stock is
the lesser of (a) the Closing Price of the common stock on the Issuance Date or
(b) 80% of the Closing Price on the date of conversion. The Closing Price as of
a given date is defined as the average closing bid price of the common stock
over the five-day trading period ending on the day prior to such date. The
number of shares of common stock into which the Series C Stock is convertible is
computed as the number of shares of Series C Stock being converted divided by
the conversion price in effect at the time of conversion. At December 31, 1995,
the Company had reserved up to 1,500,000 shares of common stock for the
conversion of the Series C Stock. At March 31, 1996, 2,333,332 shares of Series
C Stock had been converted into an aggregate of 717,948 shares of common stock
and 1,666,668 shares of Series C Stock remained outstanding (unaudited).

3. STOCK OPTION PLANS

The Company's 1992 Stock Plan (the "1992 Plan") permits the Company to
grant incentive stock options to employees at 100% of the fair value of the
Company's common stock at the date of grant, and nonqualified stock options at
no less than 85% of the fair value of the Company's common stock at the grant
date. However, options granted to employees owning more than 10% of all classes
of stock of the Company at the grant date are to be at no less than 110% of the
fair market value of the Company's common stock. Vesting begins on either the
grant date or, if different, on the vesting commencement date specified by the
Board of Directors. Such vesting is subject to continued employment with the
Company.

Information with respect to options granted under the 1992 Plan is
summarized as follows:

<TABLE>
<CAPTION>
SHARES UNDER OUTSTANDING OPTIONS
------------------------------------
SHARES AGGREGATE
AVAILABLE OPTION PRICE EXERCISE
FOR GRANT SHARES PER SHARE PRICE
--------- ------- ------------ ---------
<S> <C> <C> <C> <C>
Balance at December 31, 1992............. 240,451 128,815 $ 0.51 $ 66,280
Grants................................. (25,946) 25,946 0.51 13,350
-------- ------- ---------- ---------
Balance at December 31, 1993............. 214,505 154,761 0.51 79,630
Shares authorized...................... 194,350 -- -- --
Grants................................. (212,478) 212,478 0.51-6.00 232,077
Exercises and Forfeitures.............. 1,498 (2,332) 0.51 (1,200)
-------- ------- ---------- ---------
Balance at December 31, 1994............. 197,875 364,907 0.51-6.00 $ 310,507
Grants................................. (50,776) 50,776 3.88-8.63 333,229
Exercises and Forfeitures.............. 9,657 (18,367) 0.51-1.03 (13,400)
-------- ------- ---------- ---------
Balance at December 31, 1995............. 156,756 397,316 0.51-8.63 630,336
Grants (unaudited)..................... (55,544) 55,544 2.63 146,081
Exercises and Forfeitures
(unaudited)......................... 20,500 (20,500) 8.25-8.63 (171,215)
-------- ------- ---------- ---------
Balance at March 31, 1996 (unaudited).... 121,712 432,360 $0.51-8.63 $ 605,202
======== ======= ========== =========
</TABLE>

F-12
<PAGE> 59

VOXEL

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

At December 31, 1994 and December 31, 1995, options to purchase
approximately 290,630 shares and 324,557 shares, respectively, were exercisable.
At March 31, 1996, options to purchase approximately 350,012 shares (unaudited)
were exercisable.

The 1992 Plan also permits the Company to grant stock purchase rights at no
less than 85% of the fair value of the Company's common stock at the grant date.
No stock purchase rights have been granted as of December 31, 1995.

In March 1994, the Company adopted the 1994 Executive Stock Option Plan
(the 1994 Plan) under which options may only be granted to Company executives.
Under the 1994 Plan, 310,961 shares have been reserved for issuance. The 1994
Plan permits the Company to grant incentive stock options and nonqualified stock
options. Incentive stock options may be granted at no less than 100% of the fair
market value of the Company's common stock at the date of grant and incentive
stock options granted to employees owning more than 10% of all classes of stock
of the Company at the grant date are to be at no less than 110% of the fair
market value of the Company's common stock. Vesting begins on either the grant
date or, if different, on the vesting commencement date specified by the Board
of Directors. In March 1994, the Company granted options under the 1994 Plan to
purchase 23,322 shares of the Company's common stock at $1.03 per share. Vesting
of these options is contingent upon the achievement of certain product
development milestones. In July 1995, 11,661 of the above mentioned options were
forfeited. Separately, in May 1995, the Company granted options under the 1994
Plan to purchase 15,000 shares of the Company's common stock at $1.50 per share,
which vest ratably over a four year period. In January 1996, the Company granted
options under the 1994 Plan to purchase an aggregate of 47,500 shares of common
stock at $2.63 per share, of which 22,500 vest ratably over a four year period
and 25,000 vest upon the achievement of a financing milestone (unaudited).

4. WARRANTS

The Company sold 1,900,000 Units in its initial public offering. Each unit
consisted of one share of common stock and one redeemable Class A warrant. The
Class A Warrants carry an exercise price of $6.25, subject to adjustment, are
immediately exercisable and expire on September 27, 1999. The Class A Warrants
are also subject to redemption by the Company at $0.05 per warrant if the price
of the Company's common stock exceeds $9.00 for twenty consecutive business days
or upon written consent from the underwriter of the Company's initial public
offering.

The Company has granted to an investment banker a warrant to purchase 1,944
shares of the Company's common stock at an exercise price of $3.09 per share.
The warrant will be exercisable through August 31, 1998.

Warrants were also issued by the Company as discussed in Notes 6 and 8. At
December 31, 1994 and December 31, 1995, the Company has reserved 2,118,140
shares and 1,998,140 shares of common stock for all outstanding warrants.

5. INCOME TAXES

The Company utilizes the liability method of accounting for income taxes as
set forth in Statement of Financial Accounting Standards No. 109, Accounting for
Income Taxes. Under the liability method, deferred taxes are determined based on
the differences between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect in the years in which the
differences are expected to reverse. Deferred tax assets are recognized and
measured on the likelihood of realization of the related tax benefits in the
future.

At December 31, 1995, the Company had approximately $5,300,000 of net
operating loss carryforwards for federal income tax purposes which begin to
expire in 2003. In addition, the Company has net operating loss carryforwards
for California income tax purposes of approximately $2,700,000 which begin to
expire in 1998.

F-13
<PAGE> 60

VOXEL

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The Company also has general business credit carryforwards for federal and
California income tax purposes of $345,000 and $192,000, respectively, which
expire in 2007.

For the year ended December 31, 1995, the Company did not incur any current
or deferred, federal or state, income tax expense.

The reconciliation of income tax expense (benefit) computed at U.S. federal
statutory rates to income tax expense (benefit) for the year ended December 31,
1993, 1994, and 1995 is as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------
1993 1994 1995
--------- ----------- -----------
<S> <C> <C> <C>
Tax at U.S. statutory rate................... $(883,000) $(1,665,000) $(1,896,000)
Losses without benefit....................... 883,000 1,665,000 1,896,000
--------- ----------- -----------
Income tax expense........................... $ -- $ -- $ --
========= =========== ===========
</TABLE>

Deferred income taxes reflects the tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's net deferred tax assets and liabilities as of December 31, 1994
and 1995 are as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1994 1995
----------- -----------
<S> <C> <C>
Deferred tax liabilities:
Tax depreciation in excess of book depreciation......... $ -- $ (128,000)
Deferred tax assets:
Capitalized research and development costs.............. $ 2,574,000 $ 4,270,000
Capitalized start-up costs.............................. 65,000 33,000
Operating loss carryforwards............................ 1,465,000 2,087,000
General business credit carryforwards................... 200,000 537,000
Other, net.............................................. (20,000) 4,000
----------- -----------
4,284,000 6,931,000
Valuation allowance..................................... (4,284,000) (6,803,000)
----------- -----------
Net deferred tax assets................................... $ -- $ --
=========== ===========
</TABLE>

The Tax Reform Act of 1986 contains provisions which could substantially
limit the availability of the net operating loss carryforwards if there is a
greater than 50% change in ownership during a three year period. As a result of
the public offering in November 1994, the Company experienced an ownership
change, resulting in a limitation on the utilization of its net operating loss
carryforwards. The limitation is based upon the value of the stock on that date.
Management believes that the limitation will not have a material adverse effect
on the Company's ability to utilize fully its net operating loss carryforwards.
The ultimate realization of the loss carryforwards is dependent upon the future
profitability of the Company.

6. NOTES PAYABLE TO SHAREHOLDERS

Notes Payable to Shareholders

In April 1993, the Company executed convertible subordinated promissory
notes with five of its major shareholders, pursuant to which the Company was
able to borrow up to $2.46 million. Interest on all outstanding principal
borrowings accrued at a basic rate of 6% per annum during the one-year period
following the initial principal borrowing date. In April 1994, all amounts
payable were extended through November 1994 and the basic interest rate was
increased to 9% per annum. Additional amounts of interest equal to 4% of

F-14
<PAGE> 61

VOXEL

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

each principal borrowing accrued on the date of each borrowing, and an
additional 4% of the total principal borrowings then outstanding accrued on each
of the dates 90, 180, and 270 days from the initial principal borrowing date.
All principal and interest due as of November 1, 1994 was repaid by the issuance
of the Company's common stock upon the closing of the initial public offering.

In April 1994, the Company issued unsecured promissory notes to five of its
major shareholders in an aggregate principal amount of $400,000. The notes
accrued interest at a rate of 9% per annum and matured on November 1, 1994, the
date on which the Company's initial public offering closed. In June 1994, an
additional amount aggregating $800,000 was borrowed by the Company under these
same terms and from the same shareholders. As of November 1, 1994, all principal
and interest due on such notes was repaid in cash from the proceeds of the
initial public offering.

Bridge Financing

On July 25, 1994, the Company issued unsecured promissory notes aggregating
$1,000,000 and warrants to acquire 200,000 shares of common stock. The notes
were repaid from the proceeds of the initial public offering. The warrants are
exercisable for five years at a per share exercise price equal to $2.50. As of
December 31, 1995, warrants to acquire 120,000 of such shares have been
exercised.

7. COMMITMENTS

The Company leases office space under an operating lease which expires in
February 1998 and which provides for increases in base rent of 6% annually. Rent
expense was $81,489, $101,468 and $132,767 in 1993, 1994, and 1995,
respectively. Aggregate future minimum payments under these leases as of
December 31, 1995 total $146,839, $155,649, and $26,924 for the years ended
December 31, 1996, 1997, and 1998, respectively.

8. CAPITAL LEASE OBLIGATIONS

Included in property and equipment at December 31, 1994 and 1995 are leased
assets with a total cost of $667,107 and $251,314, respectively, which have a
net book value of $400,016 and $143,299, respectively. Except for certain
telephone equipment, all equipment under capital leases is leased from the same
lessor. Certain of these leased assets were previously purchased by the Company
and then sold to the lessor at cost. In addition, the lessor received a warrant
to purchase 16,196 shares of common stock at $3.09 per share. The warrant is
currently exercisable and expires in 2003.

At December 31, 1995, future minimum payments under capital lease
obligations are as follows:

<TABLE>
<S> <C>
Year ending December 31, 1996..................................... $ 95,191
Year ending December 31, 1997..................................... 22,162
Year ending December 31, 1998..................................... 7,691
---------
Total payments.................................................... 125,044
Less amount representing interest................................. (15,804)
---------
109,240
Less current portion.............................................. (81,276)
---------
Long-term portion................................................. $ 27,964
=========
</TABLE>

F-15
<PAGE> 62

[VOXEL'S DIGITAL HOLOGRAPHY SYSTEM SCHEMATIC]

Data collected by CT or MR scanners are commonly displayed as a series of
cross-sectional slices printed side by side on film. In Voxel's Digital
Holography System (which will not be commercially available for at least four
months), the data are also printed as a series of cross-sectional slices on
film, but they are arranged one behind another on a single sheet of film. The
resulting image is a transparent three-dimensional model of a patient's anatomy.

Neurosurgeons at a clinical research site review a Voxgram in preparation for
surgery.

[NEUROSURGEONS AT CLINIC]
<PAGE> 63

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

NO DEALER, SALESPERSON, OR OTHER PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH
THIS OFFERING TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN
THOSE CONTAINED IN THIS PROSPECTUS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO BUY IN ANY JURISDICTION TO ANY PERSON
TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
CIRCUMSTANCES OF THE COMPANY OR THE FACTS HEREIN SET FORTH SINCE THE DATE
HEREOF.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 6
Dilution.............................. 12
Use of Proceeds....................... 13
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.............................. 20
Management............................ 32
Certain Transactions.................. 37
Principal Shareholders................ 38
Debt Financings....................... 39
Description of Securities............. 40
Shares Eligible for Future Sale....... 43
Underwriting.......................... 44
Legal Matters......................... 45
Experts............................... 45
Additional Information................ 46
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>

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

LOGO

2,600,000 Shares of
Common Stock
--------------------

PROSPECTUS
--------------------
CRUTTENDEN ROTH
INCORPORATED
August 1, 1996

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