# Table	of	Contents

# UNITED	STATES

# SECURITIES	AND	EXCHANGE	COMMISSION

(Mark	One)

# ANNUAL	REPORT	PURSUANT	TO	SECTION	13	OR	15(d)	OF	THE	SECURITIES	EXCHANGE	ACT	OF	1934

For	the	fiscal	year	ended:	September	27,	2003

# TRANSITION	REPORT	PURSUANT	TO	SECTION	13	OR	15(d)	OF	THE	SECURITIES	EXCHANGE	ACT	OF	1934

# Hologic,	Inc.

(Exact	Name	of	Registrant	as	Specified	in	Its	Charter)

Delaware

(State	or	Other	Jurisdiction	of

(IRS	Employer

35	Crosby	Drive,	Bedford,	Massachusetts	01730

(Address	of	Principal	Executive	Offices,	Including	Zip	Code)

(Registrant's	Telephone	Number,	Including	Area	Code)

# Securities	registered	pursuant	to	Section	12(b)	of	the	Act:	NONE

# Securities	registered	pursuant	to	Section	12(g)	of	the	Act:	Common	Stock,	$.01	par	value	Rights	to	Purchase	Preferred	Stock

Indicate	by	check	mark	whether	the	registrant	(1)	has	filed	all	reports	required	to	be	filed	by	Section	13	or	15(d)	of	the	Securities	Exchange	Act	of	1934	during	the preceding	12	months	(or	for	such	shorter	period	that	the	registrant	was	required	to	file	such	reports),	and	(2)	has	been	subject	to	such	filing	requirements	for	the	past	90 days.	Yes	x	No	¨

Indicate	by	check	mark	if	disclosure	of	delinquent	filers	pursuant	to	Item	405	of	Regulation	S-K	is	not	contained	herein,	and	will	not	be	contained,	to	the	best	of Registrant's	knowledge,	in	definitive	proxy	or	information	statements	incorporated	by	reference	in	Part	III	of	this	Form	10-K	or	any	amendment	to	this	Form	10-K.	x

Indicate	by	check	mark	whether	the	registrant	is	an	accelerated	filer	(as	defined	in	Exchange	Act	Rule	12b-2).	Yes	x	No	¨

The	aggregate	market	value	of	the	registrant's	Common	Stock	held	by	non-affiliates	of	the	registrant	as	of	March	28,	2003	was	$173,092,533	based	on	the	price	of	the last	reported	sale	on	the	Nasdaq	National	Market	System	on	that	date.

# DOCUMENTS	INCORPORATED	BY	REFERENCE

Proxy	Statement	for	the	registrant's	annual	meeting	of	stockholders	to	be	filed	within	120	days	of	the	end	of	its	fiscal	year	ended	September	27,	2003	(Part	III:	Items	10, 11,	12	and	13)

# SPECIAL	NOTE	REGARDING	FORWARD-LOOKING	STATEMENTS

Some	of	the	statements	contained	in	this	report	are	forward-looking	statements	within	the	meaning	of	Section	27A	of	the	Securities	Act	of	1933	and	Section	21E of	the	Securities	Exchange	Act	of	1934.	These	statements	involve	known	and	unknown	risks,	uncertainties	and	other	factors	which	may	cause	our	or	our	industry's actual	results,	performance	or	achievements	to	be	materially	different	from	any	future	results,	performance	or	achievements	expressed	or	implied	by	the	forward-looking statements.	Forward-looking	statements	include,	but	are	not	limited	to	statements	regarding:

•our	goal	to	increase	revenues	and	profitability;

•our	goal	of	expanding	our	market	positions;

•the	development	of	new	competitive	technologies	and	products;

•regulatory	approval	and	clearances	for	our	products;

•production	schedules	for	our	products;

•market	acceptance	of	new	products;

•the	anticipated	development	of	our	markets	and	the	success	of	our	products	in	these	markets;

•the	anticipated	performance	and	benefits	of	our	products;

•business	strategies;

•the	phase-out	or	de-emphasis	of	certain	of	our	product	lines,	such	as	certain	of	our	Delphi,	QDR	and	EPEX/RADEX	product	lines;

•dependence	on	significant	suppliers;

•dependence	on	significant	distributors	and	customers	and	strategic	alliances;

•compliance	with	covenants	contained	in	credit	facilities	and	long	terms	leases;

•general	economic	conditions;

•the	impact	of	our	cost-savings	initiatives;	and

•our	financial	condition	or	results	of	operations.

In	some	cases,	you	can	identify	forward-looking	statements	by	terms	such	as	"may,"	"will,"	"should,"	"could,"	"would,"	"expects,"	"plans,"	"anticipates," "believes,"	"estimates,"	"projects,"	"predicts,"	"potential"	and	similar	expressions	intended	to	identify	forward-looking	statements.	These	statements	are	only	predictions and	involve	known	and	unknown	risks,	uncertainties,	and	other	factors	that	may	cause	our	actual	results,	levels	of	activity,	performance,	or	achievements	to	be materially	different	from	any	future	results,	levels	of	activity,	performance,	or	achievements	expressed	or	implied	by	such	forward-looking	statements.	Given	these uncertainties,	you	should	not	place	undue	reliance	on	these	forward-looking	statements.	Also,	these	forward-looking	statements	represent	our	estimates	and	assumptions only	as	of	the	date	of	this	report.	Except	as	otherwise	required	by	law,	we	expressly	disclaim	any	obligation	or	undertaking	to	release	publicly	any	updates	or	revisions	to any	forward-looking	statement	contained	in	this	report	to	reflect	any	change	in	our	expectations	or	any	change	in	events,	conditions	or	circumstances	on	which	any	of our	forward-looking	statements	are	based.	Factors	that	could	cause	or	contribute	to	differences	in	our	future	financial	results	include	those	discussed	in	the	Risk	Factors set	forth	in	Item	7	below	as	well	as	those	discussed	elsewhere	in	this	report.	We	qualify	all	of	our	forward-looking	statements	by	these	cautionary	statements.

# Part	I

# Item	1. 	 Business

# Overview

We	are	a	leading	developer,	manufacturer	and	supplier	of	diagnostic	and	medical	imaging	systems	primarily	serving	the	healthcare	needs	of	women.	We	focus our	resources	on	developing	systems	and	subsystems	offering	superior	image	quality	and	diagnostic	accuracy,	which	has	enabled	us	to	capture	significant	market	share and	customer	loyalty,	despite	the	presence	of	large	competitors.	Our	core	women's	healthcare	business	units	are	focused	on	bone	densitometry,	mammography	and direct-to-digital	radiography.	Our	bone	densitometry	product	line	and	our	Lorad	line	of	mammography	systems	are	premier	brands	in	their	markets.	In	addition,	we develop,	manufacture	and	supply	other	X-ray-based	imaging	systems,	such	as	general-purpose	direct-to-digital	radiography	equipment	and	mini	C-arm	imaging products.	We	have	begun	to	sell,	distribute	and	service	complementary	products	that	were	developed	and	manufactured	by	other	original	equipment	manufacturers. Recent	examples	of	these	products	include	our	jointly	labeled	breast	imaging	ultrasound	system	with	Aloka	Company,	Ltd.,	our	computer	aided	detection	software	for breast	cancer	detection	with	R2	Technology	and	our	breast	biopsy	system	with	Suros	Surgical	Systems.	Our	customers	include	hospitals,	imaging	clinics	and	private practices	and	include	many	of	the	leading	healthcare	organizations	in	the	world.	Our	customers	are	also	major	pharmaceutical	companies	who	utilize	our	products	in conducting	clinical	trials.

We	were	founded	on	and	remain	committed	to	the	principle	of	applying	superior	technology	to	medical	imaging	challenges.	We	achieved	our	first	market	and technology	position	shortly	after	the	first	commercial	shipment	of	our	initial	product	targeting	bone	densitometry	in	1987.	Our	patented	technology	remains	a	leading bone	densitometry	assessment	tool,	offering	superior,	cost-effective	accuracy	and	reliability.	Starting	in	1996,	we	embarked	on	an	acquisition	program	intended	to expand	and	diversify	our	business.	In	1996	we	acquired	Fluoroscan	Imaging	Systems,	a	market	leader	for	low	intensity,	real-time	mini	C-arm	X-ray	imaging	devices that	address	the	trend	towards	minimally	invasive	surgery.	We	have	long	identified	mammography	as	an	attractive	growth	opportunity	where	superior	imaging technology	could	significantly	improve	diagnosis.	With	this	goal	in	mind,	in	June	1999,	we	acquired	Direct	Radiography	Corp.,	or	DRC,	from	Sterling	Diagnostics	and have	continued	to	invest	in	the	development	of	their	direct-to-digital	X-ray	technology,	DirectRay,	targeting	mammography	as	well	as	general	radiography	applications. While	we	originally	intended	to	internally	develop	mammography	systems	based	on	DirectRay,	in	September	2000	we	significantly	expedited	our	entry	into	the mammography	market	by	acquiring	the	U.S.	assets	of	Trex	Medical	Corporation,	which	included	the	Lorad	product	line	of	mammography	and	minimally	invasive	breast biopsy	systems	used	to	detect	breast	cancer.	We	estimate	that	we	have	sold	over	11,000	mammography	systems	worldwide	and	our	products	are	known	within	the industry	for	superior	image	quality	and	technological	innovation.	We	successfully	integrated	our	DirectRay	technology	into	the	Lorad	mammography	product	line	and offer	both	digital	upgrades	to	our	existing	installed	base	and	new	digital	systems	to	potential	customers.

As	a	result	of	these	acquisitions	and	our	commitment	to	develop	digital	radiography,	particularly	for	mammography	systems,	we	generated	losses	in	fiscal	1999, 2000	and	2001.	In	August	2001,	we	implemented	an	extensive	restructuring	plan	focused	on	returning	to	profitability	and	strengthening	our	competitive	position	in	the women's	health	and	emerging	digital	imaging	markets.	This	restructuring	plan	included	a	company-wide	cost	savings	initiative,	which	resulted	in	annual	cost	savings	in excess	of	$11	million.	Initiatives	included	a	reduction	of	the	workforce,	reduction	of	operating	expenses	in	each	of	our	business	units	and	the	phase-out	of	non-core	and unprofitable	units.	The	second	element	of	our	restructuring	plan	focused	on	long-term	revenue	growth	through	new	marketing	programs,	expanded	distribution channels,	and	development	of	strategic	business	relationships.	In	January	2002,	we	officially	closed	our	conventional	X-ray	equipment	manufacturing	facility	located	in Littleton,	Massachusetts,	which	was	acquired	through	our	acquisition	of	the	U.S.	assets	of	Trex	Medical.	This	business	incurred	significant	losses	during	fiscal	2001.	We relocated	some	of	the	Littleton	product	lines,	and	sales	and	service	support	personnel	to	our	corporate	headquarters	in	Bedford,	Massachusetts.	Since	the	beginning	of fiscal	2001	through	the	end	of	fiscal	2003,	we	reduced	our	workforce	by	approximately	25%.

We	returned	the	Company	to	profitability	in	the	second	quarter	of	fiscal	2002.	We	are	continuing	to	focus	on	expanding	our	market	position	in	bone	densitometry and	mammography,	and	leading	the	field	of	digital	mammography.	To	that	end,	in	October	2002,	we	received	final	approval	from	the	FDA	to	commence	marketing activities	with	respect	to	our	Lorad	Selenia	full	field	digital	mammography	system.	In	fiscal	2003,	double	digit	growth	in	our	two	major	women's	health	care	segments, bone	densitometry	and	mammography,	dramatically	improved	our	profitability.	In	addition,	we	continued	to	focus	on	cost	reductions	and	the	expansion	of	our	direct sales	and	service	force	in	the	United	States	and	late	in	fiscal	2003	we

began	to	de-emphasize	sales	of	our	lower	margin	digital	end-use	general	radiography	systems.	We	are	continuing	to	evaluate	new	marketing	programs	to	expand	market share	in	our	core	markets,	to	assess	new	distribution	channels	for	our	product	portfolio	and	to	pursue	business	relationships	that	would	allow	us	to	further	leverage	our state-of-the-art	technology	base.

We	were	incorporated	in	Massachusetts	in	October	1985	and	reincorporated	in	Delaware	in	March	1990.	Unless	the	context	otherwise	requires,	references	to	us, Hologic	or	our	company	refer	to	Hologic,	Inc.	and	each	of	its	consolidated	subsidiaries.	We	view	our	operations	and	manage	our	business	in	five	principal	operating segments:	osteoporosis	assessment	products,	mammography	products,	direct-to-digital	imaging	products,	mini	C-arm	imaging	products	and	conventional	general radiography	products.	We	have	provided	financial	information	concerning	these	segments	in	Note	10	of	the	Notes	to	our	Consolidated	Financial	Statements	included	in this	report.

Trademarks	used	or	registered	by	Hologic	and	our	divisions	and	subsidiaries	in	the	United	States	or	other	countries	include:	Acclaim,	Affinity,	Affinity	Platinum, Alexa,	"At	LORAD,	Every	Month	is	Breast	Cancer	Month,"	Auto	Film	ID,	Backtrack,	CADfx,	Contour,	Clarity	of	Vision,	Dataport,	Delphi,	Digispot,	Direct Radiography,	DirectRay	and	the	DirectRay	signal	profile	logo,	Discovery,	Dual	Hip,	EPEX,	EPEX	ER,	EPEX	Symphony,	Exam	Coach,	Explorer,	Express	BMD, Express	Exam,	Fluoroscan,	HiBrite,	Hologic	and	the	Hologic	Logo,	HTC,	Image	Pro,	Instant	Vertebral	Assessment,	IRIS,	IVA,	IVA	Works,	LORAD,	"LORAD	A Hologic	Company,"	LORAD	DSM,	LORAD	Elite,	M-IV,	M-IV	Platinum,	MultiCare,	Omniflex,	One	Time,	OnePage	Dx,	OnePage	Fx,	OnePass,	Permagrid,	Physicians Report	Writer,	Physicians	Viewer,	Picturing	Life,	Power	of	Now,	Premier,	Premier	Encore,	QDR,	QDR-1000,	QDR-4500,	RADEX,	Sahara,	ScoutMarc,	Selenia, SmartWindow,	StereoLoc,	SureLock,	Tech	Tips,	UBA,	and	XRE.

# Available	Information

Our	Internet	website	address	is	http://www.hologic.com.	Through	our	website,	we	make	available,	free	of	charge,	our	annual	report	on	Form	10-K,	quarterly reports	on	Form	10-Q,	current	reports	on	Form	8-K	and	any	amendments	to	those	reports,	as	soon	as	reasonably	practicable	after	we	electronically	file	such	material with,	or	furnish	it	to,	the	SEC.	These	SEC	reports	can	be	accessed	through	the	investor	relations	section	of	our	website.	The	information	found	on	our	website	is	not	part of	this	or	any	other	report	we	file	with	or	furnish	to	the	SEC.

# Our	Markets	and	Products

Our	core	women's	healthcare	business	units	are	focused	on	bone	densitometry,	mammography	and	direct-to-digital	radiography.	In	addition,	we	develop, manufacture	and	supply	other	x-ray	based	imaging	systems,	such	as	general	purpose	direct-to-digital	radiography	equipment	and	mini	C-arm	products.

# Osteoporosis	Assessment	Products

Bone	densitometry	is	the	precise	measurement	of	bone	density	to	assist	in	the	diagnosis	and	monitoring	of	osteoporosis	and	other	metabolic	bone	diseases	that	can lead	to	debilitating	bone	fractures,	often	of	the	spine	and	hip.	In	February	2003,	the	National	Osteoporosis	Foundation	estimated	that	osteoporosis	is	a	major	public health	threat	for	almost	44	million	Americans,	the	majority	of	whom	are	women.	Each	year	osteoporosis	contributes	to	more	than	1.5	million	new	hip,	spine	and	other fractures.	The	National	Osteoporosis	Foundation	estimated	that	the	national	direct	expenditures	for	osteoporotic	and	associated	fractures	were	$17	billion	in	2001	and that	the	cost	is	rising.	A	significant	boost	for	our	osteoporosis	assessment	business	was	the	1995	introduction	of	drug	therapies	to	treat	and	prevent	osteoporosis.	We believe	that	the	introduction	of	new	drug	therapies,	the	aging	of	the	population,	and	an	increased	focus	on	women's	health	issues	and	preventive	medical	practices	has created	a	growing	awareness	among	patients	and	physicians	that	osteoporosis	is	treatable.	As	a	result,	more	women	than	ever	are	seeking	assessment	for	osteoporosis. We	believe	that	the	demand	for	our	bone	densitometry	systems	will	continue	to	be	driven	by	an	increase	in	the	number	of	available	therapies	to	treat	osteoporosis,	the increase	in	the	at-risk	population,	and	broader	reimbursement	coverage	for	bone	density	testing.	In	fiscal	2003,	we	shipped	more	than	900	dual-energy	X-ray	bone densitometry	systems	worldwide.

We	introduced	our	first	product	serving	the	bone	densitometry	market	in	1986,	began	commercial	shipments	in	1987,	and	quickly	gained	recognition	for	our superior	technology.	Our	patented	dual-energy	X-ray	technology	remains	a	leading	bone	densitometry	assessment	tool,	offering	superior,	cost-effective	accuracy	and reliability.	In	1999,	we	introduced	the

Delphi	QDR	x-ray	densitometer,	the	first	system	to	perform	both	bone	density	measurements	and	Instant	Vertebral	Assessment,	or	IVA.	Delphi's	technology	enables physicians	to	measure	bone	density	and	to	visually	identify	vertebral	(spine)	fractures	in	a	clinical	setting.	Spine	fractures	are	typically	the	first	clinical	manifestation	of osteoporosis,	and	frequently	occur	in	patients	who	do	not	yet	have	markedly	reduced	bone	density.	The	ability	to	conduct	these	two	diagnostic	procedures	with	one system	enables	doctors	to	cost-effectively	improve	fracture	risk	assessment	and	to	capture	greater	reimbursement	fees.	IVA	has	been	widely	embraced	by	the	medical community,	and	we	have	installed	over	1500	systems	worldwide	with	IVA	capabilities.	In	May	2001,	we	received	the	2001	Frost	&	Sullivan	Technology	Innovation Award	in	the	osteoporosis	diagnostics	market,	given	for	technical	superiority	within	the	industry.

In	December	of	2002,	we	introduced	our	next	generation	of	bone	densitometers,	the	Discovery	QDR	Series.	Discovery	reduces	bone	density	scan	times	by	67%, providing	bone	density	and	IVA	imaging	scans	in	just	10	seconds.	In	addition,	Discovery	provides	our	CADfx	feature,	which	automates	the	evaluation	of	spine fractures.	Discovery's	automation	and	connectivity	features	improve	patient	throughput	and	integrate	with	electronic	information	systems.	In	October	2003	we introduced	our	Explorer	QDR	bone	densitometer,	with	first	commercial	shipments	scheduled	for	February	2004.	Explorer	is	an	entry	level	fan-beam	x-ray	bone densitometer,	which	is	designed	for	cost	conscious	practitioners,	particularly	in	international	markets.	During	fiscal	2004,	we	plan	to	complete	the	phase-out	of	the Delphi,	QDR-4500,	and	QDR-4000	product	lines,	as	we	fully	transition	to	the	Discovery	and	Explorer	product	lines.

In	addition	to	sales	of	new	bone	densitometry	systems,	we	also	offer	upgrade	opportunities	to	purchasers	of	many	of	our	earlier	generation	systems,	in	order	to incorporate	IVA	imaging	technology,	automation,	and	electronic	reporting	features.	We	have	sold	over	750	bone	densitometer	system	upgrades	world	wide.

# Products

Our	osteoporosis	assessment	products	include	a	family	of	QDR	X-ray	bone	densitometers	and	the	Sahara	Clinical	Bone	Sonometer,	a	low-cost	ultrasound	device that	assesses	the	bone	density	of	the	heel.

QDR	X-Ray	Bone	Densitometers.	Since	our	first	commercial	shipment	of	a	QDR	system	in	October	1987,	we	have	sold	more	than	10,000	QDR	systems.	We believe	that	advantages	of	our	QDR	systems	include	high	precision,	low	patient	radiation	exposure	equivalent	to	1/10th	of	a	conventional	chest	X-ray,	a	relatively	fast scanning	time,	low	operating	cost,	and	the	ability	to	measure	bone	density	of	the	most	important	fracture	sites,	the	spine	and	hip.	Our	studies	and	those	of	independent investigators	have	demonstrated	that	the	systems	can	detect	a	change	in	spine	bone	density	with	a	precision	error	of	less	than	1%.

All	our	QDR	systems	employ	our	patented	Automatic	Internal	Reference	System,	which	continuously	calibrates	each	patient's	bone	density	measurement	to	a known	standard.	This	system	virtually	eliminates	errors	that	might	result	from	manual	calibration	and	saves	operators	the	time-consuming	task	of	calibrating	several times	a	day.	The	system	automatically	compensates	for	drift	in	the	X-ray	system,	detectors	or	other	electronic	components,	which	ensures	long-term	measurement stability.

We	have	invested	substantial	resources	in	developing	operating	and	applications	software	for	our	systems.	The	software	includes	calibration	software,	automated scan	and	analysis	programs	for	each	scan	site,	and	a	patient	data	base	manager.	In	2001	and	2002	we	introduced	a	series	of	software	tools	for	remote	softcopy interpretation	and	electronic	reporting	of	test	results.	We	believe	that	electronic	reporting	is	a	critical	feature	for	any	medical	imaging	device,	as	medical	providers	move towards	paperless	storage	and	reporting	systems.

In	November	1999,	we	introduced	our	Delphi	QDR	Series	bone	densitometer.	Delphi	was	the	first	bone	densitometer	to	offer	physicians	the	ability	to simultaneously	assess	two	of	the	strongest	risk	factors	for	osteoporotic	fracture:	existing	fractures	of	the	spine	and	low	bone	density.	Using	high-resolution	fan	beam	X- ray	imaging	technology,	Hologic's	IVA	technology	enables	clinicians	to	perform	a	rapid,	low-dose	evaluation	of	the	spine	in	a	single	office	visit	during	a	routine	bone densitometry	exam.	The	high-resolution,	single-energy	images	obtained	with	IVA	visually	reveal	spinal	fractures,	which	substantially	increase	the	risk	of	future	fracture, and	thereby	affect	a	clinician's	therapeutic	decisions.	Prior	to	the	introduction	of	IVA,	spine	fractures	were	rarely	evaluated	in	clinical	osteoporosis	assessment, primarily	due	to	the	inconvenience	and	high	radiation	dose	associated	with	obtaining	conventional	X-ray	films.	IVA	provides	a	simple,	point	of	care	tool	for	vertebral assessment,	with	only	1%	of	the	radiation	dose	of	standard	radiographic	assessment.	The	combination

of	bone	mineral	density	assessment	and	spine	fracture	assessment	improves	the	clinician's	ability	to	accurately	target	therapy	to	those	who	can	benefit	most.

In	December	of	2002,	we	introduced	our	Discovery	QDR	Series	of	bone	densitometers.	Discovery	acquires	bone	density	and	IVA	scans	in	just	ten	seconds, which	we	believe	provides	the	most	comprehensive	assessment	of	fracture	risk	in	the	shortest	amount	of	time.	Discovery's	CADfx	feature	automates	the	classification	of spine	fractures,	and	our	Express	Exam	feature	completely	automates	the	patient	examination	procedure.	Discovery	also	offers	workflow	and	connectivity	enhancements, including	complete	electronic	integration	with	hospital	information	systems.

Discovery	systems	are	modular	in	design,	allowing	customers	to	add	features	and	capabilities,	while	protecting	their	investment	in	equipment	and	patient	data. Discovery	is	available	in	six	different	configurations,	including	the	Ci	and	Wi	models,	which	do	not	include	the	IVA	capability,	the	C	and	W	models,	which	include IVA,	and	the	more	advanced	A	and	SL	models.

An	important	feature	of	the	Discovery	A	and	SL	systems	is	their	ability	to	perform	lateral,	side-to-side	scans	of	the	spine,	without	turning	the	patient	on	her	side, in	addition	to	back-to-front	measurements.	The	A	and	SL	systems	are	capable	of	producing	high	quality	images	of	the	spine,	lateral	spine,	hip	and	other	skeletal	sites.	A motorized	rotating	scan	arm	allows	for	multiple	scan	views	without	patient	repositioning.	By	using	either	of	the	A	or	SL	systems,	high-quality	IVA	images	of	the	entire spine	can	be	obtained	in	as	little	as	ten	seconds.

In	October	of	2003,	we	introduced	our	Explorer	QDR	Series	bone	densitometer.	Explorer	is	an	entry	level	x-ray	bone	densitometer	targeted	at	cost	conscious practitioners,	particularly	in	international	markets.	Like	Discovery,	Explorer	is	a	fan-beam	system	that	utilizes	a	high	density	linear	array	of	detectors,	and	can	acquire	a 2-dimensional	x-ray	in	a	single	linear	scan	motion.	Older	generation	systems	require	scanning	in	a	rectilinear	pattern,	which	lengthens	scan	times	and	decreases	image resolution.	Explorer	is	designed	based	on	the	Discovery	platform,	and	offers	Discovery's	workflow	and	connectivity	enhancements,	but	cannot	be	upgraded	to	the	IVA capability.	We	expect	to	begin	shipments	of	Explorer	systems	in	February	2004.

During	fiscal	2004,	we	plan	to	complete	the	phase-out	of	the	Delphi,	QDR-4500,	and	QDR-4000	product	lines,	as	we	fully	transition	to	the	Discovery	and Explorer	product	lines.

Ultrasound.	In	addition	to	our	QDR	X-ray	bone	densitometers,	we	have	developed	and	sell	a	light-weight,	portable	ultrasound	bone	analyzer,	called	Sahara,	that assesses	the	bone	density	of	the	heel.	Clinical	trials	of	ultrasound	systems	have	indicated	a	significant	association	of	low	ultrasonic	bone	measurements	of	the	heel	and the	risk	of	fracture.	Since	ultrasound	devices	do	not	use	X-rays	in	making	their	measurements,	they	do	not	require	X-ray	licensed	or	registered	operators.	However, because	ultrasound	bone	measurements	currently	are	not	as	precise	as	X-ray	and	other	measurements,	they	are	less	reliable	for	monitoring	of	small	changes	in	bone density	or	for	assessing	the	response	to	therapies.	In	addition,	they	are	generally	limited	to	measurements	at	peripheral	skeletal	sites,	not	the	spine	or	hip,	which	are considered	the	gold	standard	for	the	diagnosis	of	osteoporosis.	We	believe	that	our	Sahara	ultrasound	system	represents	a	relatively	low	cost,	portable,	easy-to-use,	non- ionizing	measurement	technique	to	assist	in	initial	screening	for	osteoporosis.	Since	our	introduction	of	the	Sahara,	over	3,500	Sahara	systems	have	been	sold worldwide.

# Mammography	and	Other	Breast	Cancer	Detection	Products

According	to	the	American	Cancer	Society,	breast	cancer	is	the	second	most	common	cancer	among	women,	and	more	than	211,000	new	cases	of	invasive	breast cancer	are	expected	to	occur	among	women	in	the	United	States	during	2003.	Breast	cancer	ranks	as	the	second	leading	cause	of	cancer-related	deaths	among	women, causing	an	estimated	40,000	deaths	in	2003.	Over	a	lifetime,	one	in	eight	women	will	develop	breast	cancer	and	today	there	are	slightly	over	2	million	women	living	in the	U.S.	who	have	been	treated	for	breast	cancer.	As	with	all	other	invasive	cancers,	lowering	morbidity	and	mortality	can	be	directly	related	to	the	stage	at	which	the disease	is	detected.	Providing	clinicians	the	tools	necessary	to	assist	in	early	detection	of	breast	cancer	represents	a	principal	business	of	Hologic.	With	the	acquisition	of the	U.S.	assets	of	Trex	Medical	in	September	2000,	we	gained	access	to	the	mammography	and	breast	biopsy	markets.	Today	we	hold	a	leading	share	in	the mammography	market,	primarily	within	the	high-end	segment.	In	fiscal	2003,	we	shipped	nearly	900	mammography	products,	and	estimate	our	installed	base	of equipment	at	over	11,000	systems	worldwide.

# Market

Leading	industry	sources	estimate	that	the	worldwide	mammography	imaging	equipment	market	will	be	greater	than	$300	million	in	2003,	and	anticipate	it	may grow	to	over	$600	million	by	2008.	This	market	growth	is	being	fueled	primarily	by	the	rapidly	emerging	segment	of	digital	mammography,	offset	only	partially	by	a decline	in	more	conventional	film-based	technologies.	These	sources	estimate	that	the	U.S.	market	for	digital	mammography	may	grow	to	over	$300	million	by	2008 from	its	introduction	only	three	years	ago.	International	markets	are	expected	to	experience	similar	growth	trends.	In	addition	to	speed	and	convenience,	digital technology	is	expected	to	provide	improved	image	quality	over	conventional	films	–	ultimately	leading	to	earlier	detection.	While	digital	mammography	systems	are presently	several	times	more	expensive	than	conventional	systems,	we	believe	they	can	provide	long-term	savings	as	they	eliminate	the	recurring	film	and	processing costs,	reduce	the	cost	of	image	storage,	and	have	the	potential	to	increase	patient	throughput.

Our	LORAD	division	offers	a	broad	line	of	breast	imaging	products,	including	the	Selenia	full	field	digital	mammography	system,	a	series	of	screen-film mammography	systems	and	a	range	of	breast	biopsy	systems.	The	Selenia	received	U.S.	FDA	marketing	approval	in	October	of	2002.	Its	technology	is	based	on	our proprietary,	amorphous	selenium	DirectRay	digital	detector,	which	preserves	image	sharpness	by	directly	converting	X-rays	to	electronic	signal.	We	believe	our	Selenia full	field	direct-to-digital	mammography	system	positions	us	to	expand	our	share	of	the	mammography	market	by	offering	clinicians	one	of	the	most	advanced	tools available	for	early	detection	of	breast	cancer.

Currently	our	highest-end	LORAD	screen-film	mammography	system,	the	M-IV	Platinum,	is	considered	a	technology	leader	in	the	mammography	marketplace. The	M-IV	Platinum	incorporates	our	High	Transmission	Cellular,	(HTC)	Grid,	recognized	by	Frost	&	Sullivan	in	connection	with	LORAD's	receipt	of	the	2001	Frost	& Sullivan	Technology	Innovation	Award,	as	one	of	the	most	effective	contrast	improvements	in	20	years	of	breast	imaging.	The	patented	HTC	technology	reduces	X-ray scatter	in	two	dimensions,	delivering	superior	contrast	and	resolution	without	an	increase	in	radiation	dose.	We	also	began	full	commercial	production	of	our	mid-tier system,	the	LORAD	Affinity,	which	can	also	be	configured	with	our	HTC	technology.	The	LORAD	Affinity	is	a	high-performance	screen-film	mammography	system specifically	developed	to	fill	a	market	need	for	a	cost-effective	product,	with	performance	characteristics	similar	to	high-end	systems.	The	Affinity	replaced	our	previous mid-tier	system,	the	Elite,	which	is	no	longer	manufactured	by	LORAD.

We	also	offer	two	minimally	invasive	breast	biopsy	systems,	the	MultiCare	Platinum	prone	stereotactic	breast	biopsy	system	and	the	StereoLoc	II	upright	system. These	systems	provide	an	alternative	to	open	surgical	biopsy,	which	is	sometimes	performed	under	general	anesthesia	in	the	outpatient	department	of	a	hospital. Minimally	invasive	biopsies	are	most	often	performed	in	a	physician's	office	or	a	breast	imaging	center	on	an	outpatient	basis	under	local	anesthesia.	Stereotactic biopsies	cause	far	less	tissue	trauma	and	are	less	expensive	than	open	surgical	biopsies.	The	following	is	a	more	detailed	description	of	the	products	sold	by	our	LORAD Division.

# Selenia	Full	Field	Digital	Mammography	System

•LORAD	Selenia.	The	Selenia,	which	utilizes	our	DirectRay	amorphous	selenium	flat-panel	detector,	is	the	industry's	first	FDA	approved	digital mammography	system	based	on	direct	conversion	technology.	Direct	conversion	technology	uses	amorphous	selenium	to	directly	convert	X-rays	to electronic	signals,	without	first	converting	them	to	light,	a	step	required	in	systems	using	indirect	conversion	detectors.	This	direct	conversion	process completely	eliminates	light	diffusion	and	preserves	image	sharpness,	for	exceptional	digital	images.

The	Selenia	has	a	number	of	other	features	which	improve	image	quality,	enhance	patient	comfort,	and	streamline	patient	throughput.	For	example,	the system's	detector	size	of	24	x	29	cm,	the	largest	in	the	industry,	accommodates	almost	all	breast	sizes	with	a	single	exposure.	In	addition,	our	award-winning HTC	Grid,	which	is	integrated	into	the	digital	detector,	significantly	reduces	radiation	scatter	and	allows	geometric	magnification	views	and	our	shifting Smart	Paddle	System	permits	all	examination	views	to	be	taken	without	changing	compression	paddles.

The	Selenia	system	facilitates	efficient	viewing	and	interpretation	by	physicians	and	provides	multiple	image	manipulation	options	through	the	use	and analysis	of	electronic	and	hard	copy	film	printouts	and	the	system's

computer	workstation.	The	system	is	configured	to	interface	with	a	sophisticated	intra-department	image	management	system	to	handle	routing,	archival, and	retrieval	of	studies,	or	can	be	integrated	with	existing	enterprise	Picture	Archiving	and	Communications	Systems	(PACS)	and	Radiology	Information Systems	(RIS).

# Screen-Film	Mammography	Systems

•LORAD	M-IV	Series,	includes	the	LORAD	M-IV	and	the	M-IV	Platinum.	The	LORAD	M-IV	has	an	installed	base	approaching	5,000	units	worldwide. Features	of	the	LORAD	M-IV	include	a	bi-angular	X-ray	tube,	dual	filter	capability,	auto	filter	mode,	three-cell	AEC	sensor,	fully	automatic	collimation and	isocentric	C-arm	rotation.	Image	quality	can	be	further	improved	through	use	of	the	HTC	Grid	and	Fully	Automatic	Self-adjusting	Tilt	(FAST)	Paddle, which	are	standard	features	of	the	M-IV	Platinum	and	optional	components	on	the	M-IV.	Other	features	of	the	LORAD	M-IV	Series	include	improved patient	management	through	streamlined	patient	scheduling,	integrated	auto	film	identification,	ands	optional	bar	code	reader.	The	LORAD	M-IV	has	also been	designed	to	be	upgradeable	to	our	Selenia	full	field	digital	mammography	system.

•LORAD	Affinity.	We	began	full	commercial	production	of	the	Affinity	in	late	2002.	The	Lorad	Affinity	is	a	screen-film	mammography	system	developed	to fill	a	market	need	for	a	cost-effective,	high	performance	mammography	product.	The	Affinity	can	be	used	with	other	LORAD	innovations	to	improve mammographic	image	quality,	including	our	HTC	and	FAST	Paddle	technology.

# Stereotactic	Breast	Biopsy	Systems

We	provide	clinicians	with	the	flexibility	of	choosing	from	either	upright	or	prone	systems	for	breast	biopsy.	Our	minimally	invasive	breast	biopsy	systems provide	an	alternative	to	open	surgical	biopsy,	which	is	generally	performed	under	general	anesthesia.

We	offer	the	StereoLoc	II	upright	biopsy	system,	which	is	used	in	conjunction	with	our	M-IV	series	of	screen-film	mammography	systems.	In	addition,	for physicians	that	perform	a	significant	number	of	biopsies,	we	offer	a	dedicated,	prone	biopsy	system	called	the	LORAD	MultiCare	Platinum	Breast	Biopsy	System (formerly	called	the	StereoGuide).	Both	systems	can	be	used	with	our	digital	"spot"	mammography	system,	which	enables	a	doctor	to	position	the	sampling	device	at	the site	of	the	suspicious	lesion.	When	performing	a	biopsy	with	any	of	our	systems,	a	doctor	has	a	choice	of	tissue-sampling	devices,	which	are	not	manufactured	by	us.

In	October	2003,	we	entered	into	a	distribution	agreement	with	Suros	Surgical	Systems	to	sell	their	breast	biopsy	tissue	sampling	devices	directly	to	our	customers and	as	a	component	of	our	biopsy	system.

# Distribution	and	Strategic	Alliances

Over	the	last	two	years	we	have	expanded	both	the	distribution	of	our	products	and	the	outsourcing	of	strategic	products	to	be	distributed	through	our	existing channels.	In	2002	we	entered	into	a	strategic	alliance	with	Siemens	AG	focused	on	the	development	of	direct-to-digital	mammography	systems.	Under	our	agreements with	Siemens,	Siemens	agreed	to	exclusively	purchase	from	us	digital	detectors	to	be	used	with	its	full	field	digital	mammography	system	during	the	five-year	term	of the	agreement	and	we	licensed	advanced	image	processing	and	display	software	from	an	affiliate	of	Siemens.	Through	this	alliance	we	have	combined	our	proprietary amorphous	selenium	direct-to-digital	technology	with	Siemens'	proprietary	software	to	create	a	dedicated	physician's	workstation	and	bring	to	market	a	direct-to-digital mammography	system.

In	2003	we	finalized	an	agreement	with	the	Agfa-Gevaert	Group	whereby	Hologic	would	manufacture	for	Agfa,	under	a	private	label,	a	digital	mammography system	utilizing	our	patented	direct-to-digital	amorphous	selenium	technology.	Under	this	agreement,	Agfa	will	purchase	completed	systems	from	us,	and	are responsible	for	all	related	installation,	warranty	and	support	requirements.	We	began	shipping	products	under	this	agreement	for	non-United	States	customers	during 2003.

In	addition	to	the	third	party	distribution	of	our	technology	and	products,	in	2003	we	entered	into	a	preferred	partnership	with	R2	Technologies	a	leading	provider of	computer	aided	detection	(CAD)	products	to	assist	in	breast	cancer	detection.	Under	this	agreement,	R2,	with	assistance	from	Hologic,	has	customized	R2's	CAD system	for	use	with	our

Selenia	system	and	we	received	worldwide	distribution	rights	to	sell	the	customized	product	in	combination	with	our	Selenia	system.	R2	is	expected	to	file	for	FDA approval	of	this	digital	CAD	product	in	early	2004.	R2	has	also	granted	us	distribution	rights	for	R2	CAD	products	that	are	designed	to	be	used	with	conventional	film- screen	mammography	systems	and	can	be	upgraded	to	be	used	with	our	digital	mammography	systems.	We	plan	to	sell	these	film-screen	CAD	products	in	conjunction with	Hologic's	digital-ready	conventional	screen-film	mammography	products.	The	Agreement	has	a	term	of	five	years	with	two	one-year	renewal	options.

# Direct-to-Digital	Imaging	Products

We	continue	to	make	a	strategic	commitment	to	digital	radiography	technology.	We	believe	that	the	advantages	of	digital	radiography	over	conventional	screen- film	and	computed	radiology	technologies	has	significant	growth	potential	in	general	and	in	our	core	mammography	systems	market	in	particular.

In	digital	mammography	and	radiography,	direct-to-digital	imaging	technology	provides	the	opportunity	for	more	expedient	patient	exam	flow,	fewer	repeat exams	and	increased	room	utilization.	Because	radiography	systems	utilizing	direct	radiography	technology	capture	and	convert	x-ray	images	into	a	digital	format	within seconds	of	exposure,	the	technologist	can	quickly	preview	the	digitized	image	for	quality	assurance	prior	to	completion	of	a	patient's	examination.	The	digitized	image can	then	be	transmitted	electronically	for	reviewing	on	a	diagnostic	workstation,	printing	on	film,	and	electronic	storage.

For	healthcare	providers,	the	benefits	of	digital	radiography	technology	stem	from	fast	and	efficient	production	of	diagnostic	quality	images.	We	believe	digital radiography	systems	incorporating	our	direct-to-digital	technology	offers	improved	patient	care,	increased	staff	and	equipment	productivity,	and	the	potential	to	attract	a greater	number	of	referral	patients	and	physicians.	In	spite	of	their	high	acquisition	cost,	digital	radiography	systems	can	be	cost	effective	in	the	long-term	when considering	increased	throughput,	savings	in	film-related	expenses,	image	storage	and	transfer	costs	as	well	as	the	benefits	of	enhanced	diagnostic	convenience.

A	significant	factor	in	the	medical	market's	acceptance	of	digital	technology	is	the	current	transition	within	the	healthcare	industry	from	conventional	x-ray	film archiving	to	Picture,	Archive	and	Communication	Systems,	or	PACS,	to	store	x-ray	images	electronically.	Although	only	a	limited	number	of	hospitals	have	adopted	the PACS	environment	to	date,	we	expect	this	adoption	rate	to	accelerate	over	the	next	several	years	as	hospitals	realize	the	value	and	cost	savings	of	a	filmless infrastructure.	While	not	all	facilities	in	which	x-ray	units	are	installed	will	migrate	to	digital	technology,	we	believe	most	large	facilities	will,	particularly	those	in	the U.S.	where	PACS	is	an	important	initiative.

A	leading	industry	analysis	firm,	estimates	that	there	are	approximately	300,000	general	radiographic	x-ray	units	installed	worldwide	with	a	replacement	rate	of approximately	11,000	systems	per	year.	By	2007,	this	firm	projects	that	the	market	for	digital	general	radiography	systems	will	exceed	$1.0	billion	annually.

Digital	radiography	technologies	can	be	divided	into	two	classes:	those	that	employ	direct	methods	to	convert	x-ray	energy	into	an	electrical	charge	and	those	that use	indirect	methods.	Technologies	using	direct-conversion	flat-panel	digital	detectors,	such	as	our	DirectRay	flat	panel	detector,	use	a	semiconductor	coating	– amorphous	selenium	(a-Se)	–	to	directly	convert	x-ray	photons	into	an	electrical	charge.	No	intensifying	screens	or	additional	processes	are	required	to	capture	and convert	the	x-ray	energy.	Digital	radiography	technologies	using	indirect	conversion	detectors	employ	a	two-step	process	for	x-ray	detection.	Semiconductor	coatings, such	as	cesium	iodide	or	gadolinium	oxysulfide,	capture	x-ray	energy	and	convert	it	to	light.	An	array	of	thin-film	diodes	then	converts	the	light	energy	to	electrical signals.	We	believe	that	other	digital	X-ray	imaging	technologies	that	use	light	compromise	image	sharpness	because	light	scatter	can	blur	the	image.

DirectRay	amorphous	selenium	coated	detectors	developed	by	our	Direct	Radiography	Corp.	subsidiary	are	particularly	well	suited	for	high-quality	digital imaging	because	selenium	has	high	x-ray	absorption	efficiency,	very	high	intrinsic	resolution	and	low	noise.	We	believe	that	amorphous	selenium	technology	results	in the	highest	quality	digital	image	across	a	wide	range	of	general	radiographic	applications	and	is	particularly	valuable	for	mammography,	which	has	high-resolution requirements.

The	wide	dynamic	range	inherent	in	Hologic	DirectRay	direct-to-digital	detectors	allows	a	radiologist	to	adjust	the	image	electronically	at	a	workstation	to optimize	the	desired	anatomy	view	and	gain	more	diagnostic	information	compared	to	traditional	film	screen	technology.

Amorphous	selenium	deposition	is	a	well-developed	technology.	It	has	been	used	for	decades	in	photocopiers,	in	photocells	and	exposure	meters	for	photographic use,	as	well	as	in	solar	cells.	It	is	also	used	as	a	photographic	toner	and	as	an	additive	in	the	glass	and	stainless	steel	industries.	With	the	only	commercially	available, FDA-cleared,	direct-conversion	selenium	detectors,	we	believe	that	our	DirectRay	technology	has	the	potential	to	gain	industry	acceptance	as	a	standard	for	direct-to- digital	conversion	technology.

In	2003	Hologic	offered	DirectRay	digital	detectors	in	Hologic	designed,	manufactured	installed	and	serviced	systems	and	to	Original	Equipment	Manufacturers (OEMs),	to	incorporate	into	their	own	equipment.	Partner	OEMs	include	Analogic	Corporation,	a	supplier	to	Eastman	Kodak,	Tromp	Medical,	Sedecal,	E-com,	GM, Neusoft,	FirstTech,	and	Dong	Kang	for	digital	radiography	systems,	and	Agfa	and	Siemens	for	digital	mammography	systems.	At	the	beginning	of	fiscal	2004	we	started to	move	away	from	selling	our	own	general	radiography	digital	X-ray	systems	in	competition	with	our	OEM	partners	in	general	digital	radiography,	and	began	to	shift resources	to	our	core	women's	health	products	-	mammography	and	osteoporosis	assessment	systems	-	while	selling	our	DirectRay	detectors	to	OEMs	for	incorporation in	their	own	line	of	digital	radiography	systems.

# Mini	C-arm	Imaging	Products

We	manufacture	and	distribute	Fluoroscan	mini	C-arm	imaging	systems.	Mini	C-arms	provide	low	intensity,	real-time	X-ray	imaging,	with	high-resolution images	at	radiation	levels	and	at	a	cost	well	below	those	of	conventional	X-ray	and	fluoroscopic	equipment.	Mini	C-arm	systems	are	used	primarily	by	orthopedic surgeons	to	perform	minimally	invasive	surgical	procedures	on	a	patient's	extremities,	such	as	the	hand,	wrist,	knee,	foot	and	ankle.

Premier	Encore.	We	introduced	the	original	Premier	mini	C-arm	system	in	August	1998.	The	Premier's	.045	mm	focal	spot	X-ray	tube,	currently	the	smallest	in the	mini	C-arm	industry,	provides	clear	resolution	and	detailed	images	on	a	six-inch	field	of	view.	The	Premier's	mini	C-arm	is	designed	to	rotate	360	degrees.	The Premier	also	features	dual	video	channels	that	allow	a	surgeon	to	display	different	views	of	the	anatomy	for	side-by-side	comparison;	four	image	buffer	memories	for instant	recall	of	previous	images;	and	built-in	video	and	Ethernet	connections	that	allow	the	user	to	output	images	to	a	printer	or	workstation,	send	to	or	receive	from remote	work	stations,	or	record,	review	and	archive	images	using	existing	Windows	NT	or	hospital	PACS.

At	the	Radiological	Society	of	North	America	trade	show	held	in	December	2002,	Fluoroscan	introduced	the	Premier	Encore	system.	The	Premier	Encore	system builds	upon	the	strengths	of	the	Premier	system,	while	retaining	the	high	resolution	imaging	that	makes	Premier	the	leading	mini	C-arm	system.	Premier	Encore streamlines	system	operation	using	a	touch	screen	interface,	configurable	physician	preference	pre-sets,	complete	DICOM	connectivity	software	capabilities,	and	CD image	storage.	The	Premier	Encore	system	is	available	with	a	laser	positioning	pointer	and	offers	60	degree	monitor	rotation	for	maximum	operating	room	flexibility.

OfficeMate.	We	introduced	the	OfficeMate	imaging	system	in	fiscal	1997.	This	system	was	designed	specifically	to	meet	the	needs	of	the	physician	office.	The OfficeMate	features	efficient,	user-friendly	operation,	high	resolution	real-time	and	freeze	frame	images,	and	the	choice	of	three	or	four	inch	field-of-view.	Due	to	its compact	size	and	portability,	we	believe	the	OfficeMate	is	well	suited	for	the	in-office	extremity	imaging	requirements	of	hand	and	orthopedic	surgeons.

# Conventional	General	Radiography	Products

In	January	2002	we	officially	closed	our	conventional	X-ray	equipment	manufacturing	facility	in	Littleton,	Massachusetts	and	relocated	some	of	the	Littleton product	lines	and	sales	and	service	support	personnel	to	our	corporate

headquarters	in	Bedford,	Massachusetts.	This	consolidation	was	part	of	our	previously	announced	plan	to	phase-out	non-core	and	unprofitable	product	lines.	In	addition to	continuing	to	provide	sales	and	service	for	our	discontinued	product	lines,	we	continue	to	manufacture	and	supply	the	following	general	radiography	products:

•Omniflex,	a	ceiling	mounted	X-ray	tube	support	system;	and

•Digital	Chest	Tube	Stand,	a	floor	mounted	X-ray	tube	support	system	for	dedicated	chest	X-ray	rooms

# Marketing	and	Sales

In	the	United	States,	we	sell	and	service	our	products	through	a	combination	of	a	direct	sales	and	service	force	and	a	network	of	independent	distributors.	In	early fiscal	2002,	we	centralized	our	management	of	these	sales	channels	for	all	of	our	product	lines.	PSS	World	Medical,	Inc.	and	its	affiliates,	our	largest	distributor	network in	the	United	States,	accounted	for	approximately	24%	of	our	product	sales	for	fiscal	2002	and	21%	of	our	product	sales	in	fiscal	2001.	In	November	2002,	PSS	sold	its Diagnostic	Imaging,	Inc.	subsidiary,	which	is	a	distributor	of	our	mammography	product	line,	to	Platinum	Equity.	Diagnostic	Imaging	(now	known	as	SourceOne),	as part	of	PSS,	accounted	for	approximately	15%	of	our	product	sales	for	fiscal	2002.	In	January	2003,	we	terminated	SourceOne,	who	represented	almost	one-half	of	the U.S.	market	for	our	mammography	products	in	fiscal	2002	and	assumed	full	sales	and	service	responsibility	in	these	geographic	locations	on	a	direct	basis.	For	2003, PSS	accounted	for	12%	of	our	product	sales.	As	of	November	30,	2003	our	direct	sales	and	service	force	comprised	of	over	68	people	in	sales,	and	123	field	service engineers,	plus	internal	technical	support	and	associated	administrative	functions.	Over	the	past	couple	years	we	have	expanded	our	direct	sales	and	service	efforts	for mammography	into	territories	that	were	previously	covered	by	SourceOne	and	other	independent	distributors,	and	we	are	considering	further	expansion	of	our	direct sales	and	service	coverage	in	the	United	States.

Our	United	States	marketing	efforts	also	include	the	use	of	two	national	account	managers	which	are	focused	on	obtaining	purchasing	contracts	from	large purchasing	entities,	such	as	managed	care	organizations	and	government	healthcare	facilities.	The	rise	of	these	large	purchasing	organizations	has	significantly	altered the	way	we	organize	ourselves.	We	believe	that	our	success	in	capturing	managed	care	accounts	will	have	a	significant	impact	on	our	growth.	We	believe	that	we	have made	excellent	progress	penetrating	these	key	accounts	as	evidenced	by	contracts	obtained	from	Consorta,	Catholic	Resource	Partners,	Broadlane,	Heath	Trust Purchasing	Group,	Novation,	Premier,	and	the	U.S.	Department	of	Veterans	Affairs.

We	sell	our	systems	in	international	markets	through	a	network	of	independent	distributors,	as	well	as	a	direct	sales	and	service	force	in	Belgium.	In	October 2003,	we	expanded	our	sales	and	service	presence	in	Belgium	by	acquiring	the	mammography	distribution	business,	including	key	service	and	application	personnel, inventory	and	other	related	assets,	from	our	independent	distributor	VH	Services	NV.	In	fiscal	2002,	we	restructured	our	operations	in	Europe,	which	included	entering into	exclusive	distribution	agreements	with	Stephanix,	one	of	the	leading	French	manufacturers	of	medical	X-ray	equipment,	and	its	affiliate,	Radiologia,	S.A.,	the	oldest X-ray	equipment	manufacturer	in	Spain,	for	sales	of	our	product	lines	in	France,	Spain	and	Portugal.	We	offer	our	broad	range	of	products	in	Latin	America,	including Argentina,	Brazil	and	Chile,	and	into	Pacific	Rim	countries,	including	Japan,	Australia,	The	Peoples	Republic	of	China,	South	Korea	and	Taiwan,	by	working	with	local sales	representatives	and	distributors	or	entering	into	strategic	marketing	alliances	in	those	territories.	In	fiscal	2003,	2002,	and	2001	foreign	sales	accounted	for approximately	32%,	20%,	and	28%	of	our	product	sales,	respectively.	See	Note	10	of	Notes	to	Consolidated	Financial	Statements	for	geographical	information concerning	those	sales.

In	fiscal	2003,	we	entered	into	a	number	of	agreements	which	have	strengthened	the	sales	and	distribution	channels	for	our	core	product	lines,	including	the following:

•	 We	signed	an	amended	contract	with	Premier,	one	of	the	nations'	foremost	purchasing	and	supply	chain	management	organizations,	for	the	purchase and	sale	of	our	Lorad	Selenia	full	field	digital	mammography	system.	The	original	contract	covers	our	Lorad	line	of	screen-film	mammography	and stereotactic	breast	biopsy	systems,	our	direct	to	digital	products	for	general	radiographic	applications,	and	the	Fluoroscan	line	of	mini	C-arm	imaging systems.

•	 We	signed	an	amended	contract	with	Novation,	a	leading	supply	chain	management	company	in	healthcare,	for	the	purchase	and	sale	of	our	Lorad Selenia	full	field	digital	mammography	system.	The	original	contract	covers	the	purchase	and	sale	of	our	Lorad	line	of	other	breast	imaging	systems. Novation	and	Hologic	have	existing	agreements	in	place	to	cover	the	purchase	and	sale	of	Hologic's	bone	densitometry	systems,	mini	C-arm	imaging products	and	digital	radiographic	units.

•	 We	finalized	a	strategic	alliance	with	The	Agfa-Gevaert	Group	focused	on	the	joint	development	of	technological	advancements	in	digital mammography.	Under	the	terms	of	the	agreement,	Hologic	will	manufacture	for	Agfa,	under	the	private	label,	"Embrace",	a	digital	mammography system	for	distribution	to	specific	international	markets.

•	 We	signed	an	agreement	with	R2	Technology	to	integrate	R2's	CAD	technology	with	Hologic's	Lorad	Selenia	full	field	digital	mammography	system. The	agreement	is	for	an	initial	term	of	five	years	with	two	one-year	renewal	options.

In	addition,	in	early	fiscal	2004,	we	entered	into	the	following	agreements:

•	 We	signed	an	agreement	with	Aloka	Company	Ltd.	giving	Hologic	exclusive	distribution	rights	in	the	United	States	for	ultrasound	products manufactured	by	Aloka	and	customized	to	Hologic's	specifications.	The	agreement	is	for	an	initial	term	of	three	years,	with	automatic	1-year	renewal options.

•	 We	signed	an	agreement	with	Suros	Surgical	Systems,	Inc.	giving	Hologic	non-exclusive	distribution	rights	in	the	United	States	for	the	Suros automated	breast	biopsy	and	tissue	excision	system,	the	ATEC™.	The	agreement	is	for	an	initial	term	of	three	years,	with	automatic	1-year	renewal options.

•	 We	signed	a	distribution	agreement	with	Confirma,	Inc.	The	agreement	gives	Hologic	non-exclusive	distribution	rights	for	CADStream,	Confirma's computer-aided-detection	(CAD)	system.

•	 We	entered	into	an	exclusive,	three-year	agreement	with	Clarian	Health	Partners,	Inc.	covering	the	purchase	and	sale	of	Hologic's	Lorad	line	of	analog and	digital	mammography	products	and	stereotactic	breast	biopsy	systems.	The	agreement	also	covers	computer-aided	detection	(CAD)	systems	from R2	Technology.	Systems	purchased	through	the	agreement	will	be	supplied	through	Associated	X-Ray	Services,	Inc.,	Hologic's	sole	distributor	in	the State	of	Indiana.

•	 We	signed	an	agreement	with	Mammography	Reporting	Systems,	Inc.	(MRS).	Under	the	terms	of	the	agreement,	Hologic	and	MRS	agreed	to	work cooperatively	to	offer	the	MRS	portfolio	of	products	to	healthcare	facilities	currently	using	or	purchasing	Hologic's	line	of	screen-film	and	digital mammography	systems.

•	 We	signed	a	distribution	agreement	with	InSiteOne,	an	on-site	and	off-site	storage	and	archiving	service	provider	for	digital	medical	images.	Under	the terms,	Hologic	will	have	non-exclusive	distribution	rights	in	the	United	States	for	InSiteOne's	proprietary	image	management	service,	InDex® (Internet	DICOM	Express).

# Competition

The	healthcare	industry	in	general,	and	the	market	for	imaging	and	osteoporosis	assessment	products	in	particular,	is	highly	competitive	and	characterized	by continual	change	and	improvement	in	technology,	and	multiple	technologies	that	have	been	or	are	under	development.	A	number	of	companies	have	developed,	or	are expected	to	develop,	products	that	compete	or	will	compete	with	our	products.	Many	of	these	competitors	offer	a	range	of	products	in	areas	other	than	those	in	which	we compete,	which	may	make	such	competitors	more	attractive	to	hospitals,	radiology	clients,	general	purchasing	organizations	and	other	potential	customers.	In	addition, many	of	our	competitors	and	potential	competitors	are	larger	and	have	greater	financial	resources	than	we	do	and	offer	a	range	of	products	broader	than	our	products. Some	of	the	companies	with	whom	we	now	compete	or	may	compete	in	the	future	have	or	may	have	more	extensive	research,	marketing	and

manufacturing	capabilities	and	significantly	greater	technical	and	personnel	resources	than	we	do,	and	may	be	better	positioned	to	continue	to	improve	their	technology in	order	to	compete	in	an	evolving	industry.	Some	of	the	companies	in	this	industry	that	have	significantly	greater	resources	and	product	breadth	than	we	do	include General	Electric	Medical	Systems	(GE),	Siemens,	Philips	and	Toshiba.	Competitors	may	develop	superior	products	or	products	of	similar	quality	for	sale	at	the	same	or lower	prices.	Moreover,	our	products	could	be	rendered	obsolete	by	new	industry	standards	or	changing	technology.	We	cannot	assure	that	we	will	be	able	to	compete successfully	with	existing	or	new	competitors.

The	primary	competitor	for	our	osteoporosis	assessment	products	is	GE,	which	manufactures	a	competing	line	of	products,	including	dual-energy	X-ray	and ultrasound	based	osteoporosis	testing	systems.	GE	is	our	primary	competitor	in	the	market	for	systems	that	measure	bone	density	of	the	hip	and	spine.	International clinical	guidelines	recognize	spine	and	hip	bone	density	measurements	as	the	standard	for	diagnosis	of	osteoporosis.	Other	companies	have	developed	lower	priced	X- ray	and	ultrasound	based	systems	that	assess	bone	status	of	peripheral	skeletal	sites,	such	as	the	heel,	hand	or	wrist.	Measurements	of	bone	density	at	peripheral	sites	are generally	utilized	for	screening	for	osteoporosis	risk,	and	patients	identified	as	at	risk	by	peripheral	testing	are	commonly	referred	for	spine	and	hip	bone	density	testing. We	believe	that	competition	in	the	field	of	dual-energy	X-ray	bone	densitometry	is	based	upon	product	versatility	and	features,	price,	precision,	speed	of	measurement, reputation,	cost	and	ease	of	operation,	product	reliability	and	quality	of	service.	While	we	are	generally	not	the	lowest	cost	provider	of	dual-energy	X-ray	systems,	we believe	that	we	have	been	able	to	compete	effectively	because	of	our	advanced	technology	and	product	features,	including	IVA	imaging.	We	offer	our	Explorer	system for	the	more	price	sensitive	segment	of	the	x-ray	based	osteoporosis	assessment	market,	and	our	Sahara	ultrasound	bone	analyzer	for	screening	applications.	We	believe that	competition	in	the	field	of	ultrasound	systems	is	based	on	price,	precision,	speed	of	measurement,	cost	and	ease	of	operation,	reputation,	product	reliability	and quality	of	service.	We	believe	that	advantages	of	our	Sahara	ultrasound	bone	analyzer	system	include	the	system's	dry	operation,	simple	single-button	operation,	and	a compact	and	self-contained	design	that	does	not	require	the	use	of	a	separate	computer.	We	believe	that	ultrasound	systems	may	also	compete	with	dual-energy	X-ray systems	in	the	diagnostic	market	for	initial	screening	of	patients.	However,	we	believe	that	because	ultrasound	systems	can	only	measure	peripheral	skeletal	sites	and	do not	have	the	precision	of	dual-energy	X-ray	systems,	dual-energy	X-ray	systems	will	continue	to	be	the	predominant	means	of	diagnosis	and	monitoring	of	bone	density changes	for	patients	being	treated	for	osteoporosis.

Our	mammography	systems	compete	with	products	offered	by	a	number	of	competitors,	including	GE,	Siemens,	PlanMed,	Instrumentarium,	Fischer	Imaging	and Agfa.	Instrumentarium	was	recently	acquired	by	GE.	GE	and	Fischer	Imaging	received	FDA	approval	to	commercialize	their	own	indirect	conversion	digital mammography	systems	in	January	2000	and	September	2001,	respectively.	We	received	FDA	approval	for	our	direct-to-digital	mammography	system,	the	Selenia	in October	2002.	Selenia	is	currently	the	only	marketed	full	field	digital	mammography	system	utilizing	direct	conversion	technology	in	the	United	States.	Both	Siemens and	Agfa	have	adopted	the	Hologic	Direct	Ray	direct-to-digital	detectors	for	use	in	their	respective	digital	mammography	systems.	The	Siemens	full	field	digital mammography	system	is	currently	available	only	internationally	as	it	is	not	yet	FDA	approved	in	the	United	States,	and	the	Agfa	system	is	supplied	by	Hologic	currently only	for	the	international	market.	While	we	offer	a	broad	product	line	of	breast	imaging	products,	we	compete	most	effectively	in	the	high-end	segment	of	the mammography	market.	We	attribute	this	success	in	large	part	to	our	patented	HTC	grid	technology	that	enables	our	products	incorporating	that	technology	to	deliver high	contrast	and	resolution.	We	believe	that	our	continued	success	will	depend	in	part	upon	our	ability	to	market	and	sell	Selenia.	Although	the	Selenia	is	priced	higher than	competing	technologies,	we	believe	Selenia	provides	outstanding	performance	in	aiding	physicians	in	the	early	detection	of	breast	cancer	due	to	its	image	quality and	dose	utilization	characteristics.	We	believe	that	our	mammography	products	compete	primarily	on	the	basis	of	image	quality,	product	features,	cost	and	ease	of operation,	price,	reputation,	product	reliability	and	quality	of	service.	We	believe	that	growth	of	the	digital	mammography	market	will	accelerate	as	product	offerings improve	image	quality	over	existing	systems.	We	expect	additional	participants	to	enter	this	digital	mammography	market	over	the	next	several	years.	Our	minimally invasive	breast	biopsy	systems	compete	with	products	offered	by	Fischer	Imaging	and	with	conventional	surgical	biopsy	procedures.	We	believe	that	competition	for	our mammography	and	breast	biopsy	products	is	based	largely	on	image	quality,	product	features,	product	reliability	and	reputation	as	well	as	price	and	service.

Our	direct-to-digital	imaging	products	compete	with	traditional	X-ray	systems	as	well	as	indirect-conversion	systems,	such	as	computed	radiography	systems, which	are	less	expensive	than	our	products.	Many	of	these	competitors	have	established	relationships	with	hospitals	and	other	of	our	potential	customers	in	our	targeted markets.	The	larger	competitors	in	these	markets	include	GE,	Siemens,	Kodak,	Canon,	Philips,	SwissRay	and	Varian.	Kodak's	digital	general	radiography	x-ray	system currently	incorporates	our	DirectRay	detector.	There	is	a	significant	installed	base	of	conventional	X-ray	imaging	products	in	hospitals	and	radiological

practices.	The	use	of	our	direct-to-digital	X-ray	imaging	products	would	require	these	potential	customers	to	either	modify	or	replace	their	existing	X-ray	imaging equipment.	At	the	beginning	of	fiscal	2004	we	started	to	move	away	from	selling	our	own	general	radiography	digital	X-ray	systems	in	competition	with	our	OEM partners	in	the	general	radiology	market	and	focus	more	on	expanding	our	OEM	sales	for	our	DirectRay	panel.	Our	OEM	customers	include	Analogic	Corporation,	a supplier	to	Eastman	Kodak,	Tromp	Medical,	Sedecal,	E-com,	GM,	Neusoft,	FirstTech,	and	Dong	Kang	for	digital	radiography	systems,	and	Agfa	and	Siemens	for	digital mammography	systems.	We	believe	that	our	DirectRay	technology	will	compete	on	the	basis	of	image	quality,	product	reliability	and	price,	as	well	as	our	reputation and	service.	We	believe	that	the	primary	advantage	of	our	DirectRay	technology	is	image	quality.	Because	of	the	early	stage	of	the	markets	for	these	products,	it	is	likely that	our	evaluation	of	the	potential	markets	for	these	products	will	materially	vary	with	time.

Our	mini	C-arm	products	compete	directly	with	mini	C-arms	manufactured	and	sold	by	a	limited	number	of	companies	including	GE.	We	also	compete	with manufacturers	of	conventional	C-arm	image	intensifiers	including	Philips,	Siemens	and	GE.	We	believe	that	competition	for	our	mini	C-arm	systems	is	based	largely	on price,	quality,	reputation,	service	and	production	capabilities.	We	believe	that	advantages	of	our	mini	C-arm	systems	include	low	levels	of	radiation,	image	quality	or resolution,	low	product	life	cycle	costs,	mobility,	quality	and	durability.

# Manufacturing

We	manufacture	all	of	our	systems,	other	than	our	mammography	and	breast	biopsy	systems,	at	our	headquarters	in	Bedford,	Massachusetts.	We	manufacture	our mammography	and	breast	biopsy	systems	at	our	manufacturing	facilities	in	Danbury,	Connecticut.	Manufacturing	operations	for	our	systems	consist	primarily	of assembly,	test,	burn-in	and	quality	control.	We	purchase	a	major	portion	of	the	parts	and	peripheral	components	for	these	products,	and	manufacture	some	subsystems, such	as	high-voltage	X-ray	power	supply,	from	raw	materials.	Parts	and	materials	for	these	systems	are	generally	readily	available	from	several	supply	sources. However,	we	rely	on	one	supplier	for	the	HTC	grid,	an	important	component	for	our	more	advanced	mammography	systems.	In	addition,	several	key	components	of	our mini	C-arm	systems	are	manufactured	by	only	one	or	a	small	number	of	suppliers,	including	the	X-ray	tube,	image	intensifier,	video	camera	and	fiberoptic	taper.

We	manufacture	our	direct	radiography	plates	at	our	manufacturing	facility	in	Newark,	Delaware.	Our	manufacture	of	DirectRay	plates	consists	primarily	of vapor	deposition	in	clean	rooms,	micro-electronics	fabrication,	assembly,	test,	burn-in	and	quality	control.	We	rely	on	one	or	only	a	limited	number	of	suppliers	for	key components	or	subassemblies	for	our	plates.	In	particular	we	have	only	one	source	of	supply	for	our	thin-film	transistor	(TFT)	plates	and	only	one	source	of	supply	for the	coating	of	those	plates.	The	manufacture	of	our	direct	radiography	detectors	is	highly	complex	and	requires	precise	high	quality	manufacturing	that	is	difficult	to achieve.	We	have	experienced	difficulties	manufacturing	these	detectors.	Changes	in	design	for	our	direct	radiography	detectors,	including	for	our	mammography detectors,	could	result	and	has	in	the	past	resulted	in	unanticipated	production	problems,	such	as	a	high	level	of	defects	for	the	newly	designed	plates.

We	are	seeking	to	qualify	a	second	supplier	for	the	plate	coating	to	increase	our	manufacturing	capacity,	but	cannot	assure	that	we	will	be	successful.	Obtaining alternative	sources	of	supply	of	components	or	systems	that	are	available	from	only	one	or	a	limited	number	of	suppliers	could	involve	significant	delays	and	other	costs, and	these	supplies	may	not	be	available	to	us	on	reasonable	terms,	if	at	all.

# Backlog

Our	backlog	as	of	November	30,	2003	totaled	$49.5	million	and	as	of	November	30,	2002	totaled	$40.9	million.	Backlog	consists	of	purchase	orders	for	which	a delivery	schedule	within	the	next	twelve	months	has	been	specified	by	the	customer.	Orders	included	in	backlog	may	be	canceled	or	rescheduled	by	customers	without significant	penalty.	Backlog	as	of	any	particular	date	should	not	be	relied	upon	as	indicative	of	our	net	revenues	for	any	future	period.

# Research	and	Development

Our	research	and	development	efforts	are	focused	on	enhancing	our	existing	products	and	developing	new	products.	Our	current	emphasis	is	development	of plates,	the	engineering	and	system	design	of	new	end-use	digital	radiography	products,	and	software	improvements	for	our	existing	products.	This	research	and development	includes	refining	and	continuing	Lorad's	research	on	the	full	field	digital	mammography	system.	In	addition,	in	December	2003	we	introduced	a

new	bone	densitometry	system	and	a	work-in-progress	add-on	feature	to	the	Selenia	system	that	performs	tomosynthesis.	Our	research	and	development	personnel	also are	involved	in	establishing	protocols,	monitoring,	and	interpreting	and	submitting	test	data	to	the	FDA	and	other	regulatory	agencies	to	obtain	the	requisite	clearances and	approvals	for	our	products.	Our	research	and	product	development	expenses,	without	consideration	of	purchased	in-process	research	and	development,	were approximately	$18.4	million	in	fiscal	2003,	$20.4	in	fiscal	2002,	and	$23.3	million	in	fiscal	2001.

# Patents	and	Proprietary	Rights

We	rely	primarily	on	a	combination	of	trade	secrets,	patents,	copyright	and	trademark	laws,	and	confidentiality	procedures	to	protect	our	technology.	Due	to	the rapid	technological	change	that	characterizes	the	medical	device	industry,	we	believe	that	the	improvement	of	existing	products,	reliance	upon	trade	secrets	and unpatented	proprietary	know-how	and	the	development	of	new	products	are	generally	as	important	as	patent	protection	in	establishing	and	maintaining	a	competitive advantage.	Nevertheless,	we	have	obtained	patents	and	will	continue	to	make	efforts	to	obtain	patents,	when	available,	in	connection	with	our	product	development program.

As	of	November	30,	2003,	we	have	obtained	48	United	States	patents	relating	to	our	densitometry	technology,	37	patents	relating	to	our	direct	radiography technology,	5	patents	relating	to	our	C-arm	technology,	and	20	patents	relating	to	the	Lorad	mammography	business.	Also,	we	license	patents	from	others	on	a	variety	of terms,	and	hold	approximately	57	additional	U.	S.	patents	relating	to	other	matters.	One	densitometry	patent	licensed	from	Stanford	University	will	expire	in	2004.	We do	not	anticipate	that	this	expiration	will	have	a	material	impact	on	our	business.	Our	remaining	patents	have	expiration	dates	ranging	from	2006	to	2022.	In	addition, we	have	applied	for	an	additional	46	U.S.	patents	on	our	technologies.	We	have	also	obtained	or	applied	for	corresponding	patents	and	patent	applications	for	some	of our	patents	in	selected	foreign	countries.

There	has	been	substantial	litigation	regarding	patent	and	other	intellectual	property	rights	in	the	medical	device	and	related	industries.	We	have	been	involved	in extensive	patent	litigation	with	Lunar	Corporation,	which	has	since	been	acquired	by	GE.	This	litigation	was	settled	by	agreement	dated	November	22,	1995.	The agreement	provides	that	neither	party	will	engage	the	other	party	in	patent	litigation	for	a	period	of	ten	years	following	the	date	of	the	agreement,	regardless	of	the infringement	claimed	and	regardless	of	whether	the	technology	in	question	currently	exists	or	is	developed	or	acquired	by	the	other	party	in	the	future.	Neither	party	is required	to	disclose	to	the	other	any	of	its	technology	during	this	ten	year	period	or	otherwise.	We	have	also	been,	and	may	be	in	the	future,	notified	that	we	may	be infringing	intellectual	property	rights	possessed	by	other	third	parties.	If	any	such	claims	are	asserted	against	us	or	our	products,	we	may	seek	to	enter	into	royalty	or licensing	arrangements.	There	is	a	risk	in	these	situations	that	no	license	will	be	available	or	that	a	license	will	not	be	available	on	reasonable	terms.	Alternatively,	we may	decide	to	litigate	such	claims	or	to	design	around	the	patented	technology.	These	actions	could	be	costly	and	would	divert	the	efforts	and	attention	of	our management	and	technical	personnel.	As	a	result,	any	infringement	claims	by	third	parties	or	other	claims	for	indemnification	by	customers	resulting	from	infringement claims,	whether	or	not	proven	to	be	true,	may	harm	our	business	and	prospects.

# Regulation

The	medical	devices	manufactured	and	marketed	by	us	are	subject	to	regulation	by	the	FDA	and,	in	many	instances,	by	foreign	governments.	Under	the	Federal Food,	Drug	and	Cosmetic	Act,	known	as	the	FDA	Act,	manufacturers	of	medical	devices	must	comply	with	certain	regulations	governing	the	design,	testing, manufacturing,	packaging	and	marketing	of	medical	devices.	Our	products	are	also	subject	to	the	Radiation	Control	for	Health	and	Safety	Act,	administered	by	the	FDA, which	imposes	performance	standards	and	record	keeping,	reporting,	product	testing	and	product	labeling	requirements	for	devices	using	radiation,	such	as	X-rays.

The	FDA	generally	must	clear	the	commercial	sale	of	new	medical	devices.	Commercial	sales	of	our	medical	devices	within	the	United	States	must	be	preceded by	either	a	premarket	notification	filing	pursuant	to	Section	510(k)	of	the	FDA	Act	or	the	granting	of	a	premarket	approval.	The	510(k)	notification	filing	must	contain information	that	establishes	the	device	to	be	substantially	equivalent	to	a	device	commercially	distributed	prior	to	May	28,	1976.

The	premarket	approval	procedure	involves	a	more	complex	and	lengthy	testing	and	review	process	by	the	FDA	than	the	510(k)	premarket	notification	procedure and	may	require	several	years	to	obtain.	We	must	first	obtain	an	investigational	device	exemption,	known	as	an	IDE,	for	the	product	to	conduct	extensive	clinical	testing of	the	device	to	obtain	the	necessary	clinical	data	for	submission	to	the	FDA.	The	FDA	will	thereafter	only	grant	premarket	approval	if,	after	evaluating	this

clinical	data,	it	finds	that	the	safety	and	efficacy	of	the	product	has	been	sufficiently	demonstrated.	This	approval	may	restrict	the	number	of	devices	distributed	or require	additional	patient	follow-up	for	an	indefinite	period	of	time.	We	received	premarket	approval	of	our	Selenia	full	field	digital	mammography	system	in	October 2002.	This	premarket	approval	permitted	us	to	begin	marketing	efforts	in	the	United	States	and	launch	our	commercialization	efforts	with	respect	to	this	product.

Our	systems	are	also	subject	to	approval	by	certain	foreign	regulatory	and	safety	agencies.	Some	of	our	technology	is	governed	by	the	International	Traffic	in Arms	Regulations	of	the	United	States	Department	of	State.	As	a	result,	the	export	of	some	of	our	systems	to	some	countries	may	be	limited	or	prohibited.

Our	manufacturing	processes	and	facilities	are	subject	to	continuing	review	by	the	FDA	and	foreign	governments	or	their	representatives.	Adverse	findings	could result	in	various	actions	against	Hologic,	including	withdrawal	of	approvals	and	product	recall.

We	cannot	assure	that	the	FDA	or	foreign	regulatory	agencies	will	give	the	requisite	approvals	or	clearances	for	any	of	our	medical	devices	under	development	on a	timely	basis,	if	at	all.	Moreover,	after	clearance	is	given,	these	agencies	can	later	withdraw	the	clearance	or	require	us	to	change	the	device	or	its	manufacturing	process or	labeling,	to	supply	additional	proof	of	its	safety	and	effectiveness,	or	to	recall,	repair,	replace	or	refund	the	cost	of	the	medical	device,	if	it	is	shown	to	be	hazardous	or defective.	The	process	of	obtaining	clearance	to	market	products	is	costly	and	time-consuming	and	can	delay	the	marketing	and	sale	of	our	products.

As	a	manufacturer	of	medical	devices,	we	are	subject	to	additional	FDA	regulations,	including	the	Radiation	Control	for	Health	and	Safety	Act	of	1968,	which specifically	regulates	radiation-emitting	products.	Most	states	and	many	other	foreign	countries	monitor	and	require	licensing	of	X-ray	devices.	Federal,	state	and	foreign regulations	regarding	the	manufacture	and	sale	of	medical	devices	are	subject	to	future	change.	We	cannot	predict	what	impact,	if	any,	such	changes	might	have	on	our business.

# Reimbursement

In	the	United	States,	the	Centers	for	Medicare	&	Medicaid	Services	(formerly	the	Health	Care	Financing	Administration),	known	as	CMS,	establishes	guidelines for	the	reimbursement	of	healthcare	providers	treating	Medicare	and	Medicaid	patients.	Under	current	CMS	guidelines,	varying	reimbursement	levels	have	been established	for	bone	density	assessment,	mammography	and	other	imaging	and	diagnostic	procedures	performed	by	our	products.	The	actual	reimbursement	amounts	are determined	by	individual	state	Medicare	carriers	and,	for	non-Medicare	and	Medicaid	patients,	private	insurance	carriers.	There	are	often	delays	between	the reimbursement	approvals	by	CMS	and	by	a	state	Medicare	carrier	and	private	insurance	carriers.	Moreover,	states	as	well	as	private	insurance	carriers	may	choose	not	to follow	the	CMS	reimbursement	guidelines.	The	use	of	our	products	outside	the	United	States	are	similarly	affected	by	reimbursement	policies	adopted	by	foreign regulatory	and	insurance	carriers.

# Employees

As	of	November	30,	2003,	we	had	722	full-time	employees,	including	216	in	manufacturing	operations,	107	in	research	and	development,	307	in	marketing,	sales and	support	services,	and	92	in	finance	and	administration.	None	of	our	employees	are	represented	by	a	union.

# Item	2. Properties

We	own	and	lease	the	real	property	identified	below.	We	believe	that	we	have	adequate	space	for	our	anticipated	needs	and	that	suitable	additional	space	will	be available	at	commercially	reasonable	prices	as	needed.

# Owned	Real	Property

We	own	a	168,000	square	foot	research	and	development,	manufacturing	and	administrative	site	in	Newark,	Delaware	at	which	DRC	conducts	its	research	and development	and	plate	manufacture.	We	currently	occupy	approximately	63,000	square	feet	of	this	building,	which	houses	our	plate	manufacturing	facility,	including both	a	class	1	and	a	class	2	clean	room.	We	lease	approximately	45,000	square	feet	of	the	facility	to	Agfa	under	a	lease	which	expires	in	April	2005.	The

remaining	space	in	the	facility,	approximately	60,000	square	feet,	is	leased	to	Dade	Behring	under	a	lease	which	expires	in	July	2010.	The	property	is	subject	to	a mortgage	to	Wells	Fargo	Foothill,	Inc.	(formerly	known	as	Foothill	Capital	Corporation).

# Leased	Real	Property

In	September	2002,	we	completed	a	sale/leaseback	transaction	for	our	200,000	square	foot	headquarters	and	manufacturing	facility	located	in	Bedford,

Massachusetts	and	our	62,500	square	foot	LORAD	manufacturing	facility	in	Danbury,	Connecticut.	The	new	lease	for	these	facilities,	including	the	associated	land,	has a	term	of	20	years,	with	four-five	year	renewal	options.	We	sublease	approximately	20,000	square	feet	of	the	Bedford	facility	to	two	subtenants,	Tech	Online	and	Reveal Imaging	Technologies,	Inc.,	under	leases	which	expire	in	May	2005	and	upon	thirty	days	written	notice	respectively.

We	lease	a	60,000	square	feet	of	office	and	manufacturing	space	in	Danbury,	Connecticut	near	our	Lorad	manufacturing	facility.	This	lease	expires	in	November 2006.

In	connection	with	our	acquisition	of	the	U.S.	assets	of	Trex	Medical,	we	also	acquired	a	lease	to	a	156,000	square	foot	office	and	manufacturing	facility	in Littleton,	Massachusetts.	We	closed	the	Littleton	facility	in	January	2002	and	the	lease	terminated	in	July	2003.

We	also	lease	a	sales	and	service	office	in	Belgium	and	a	support	office	in	France.

# Item	3. 	 Legal	Proceedings

We	are	not	a	party	to	any	material	pending	legal	proceedings.

# Item	4. Submission	of	Matters	to	a	Vote	of	Security	Holders.

# None.

# Part	II

# Item	5. 	 Market	for	Registrant's	Common	Equity	and	Related	Stockholder	Matters.

Market	Information.	Our	common	stock	is	traded	on	the	Nasdaq	National	Market	under	the	symbol	"HOLX."	The	following	table	sets	forth,	for	the	periods indicated,	the	high	and	low	sales	prices	per	share	of	our	common	stock,	as	reported	by	the	Nasdaq	National	Market.

| Fiscal	Year	Ended	September	27,	2003 | High | Low |
| :--- | :--- | :--- |
| First\tQuarter | $14.34 | $9.90 |
| Second\tQuarter | 13.05 | 7.10 |
| Third\tQuarter | 13.60 | 8.45 |
| Fourth\tQuarter | 16.85 | 12.50 |

Number	of	Holders.	As	of	December	19,	2003,	there	were	approximately	1,704	holders	of	record	of	our	common	stock,	including	multiple	beneficial	holders	at depositaries,	banks	and	brokers	listed	as	a	single	holder	in	the	street	name	of	each	respective	depositary,	bank	or	broker.

Dividend	Policy.	We	have	never	declared	or	paid	cash	dividends	on	our	capital	stock	and	do	not	plan	to	pay	any	cash	dividends	in	the	foreseeable	future.	Our current	policy	is	to	retain	all	of	our	earnings	to	finance	future	growth.	In	addition,	our	existing	credit	facility	with	Wells	Fargo	Foothill,	Inc.	prohibits	us	from	declaring or	paying	any	dividends.

Recent	Sales	of	Unregistered	Securities.	We	did	not	sell	unregistered	securities	during	fiscal	2003.

# Item		6. Selected	Financial	Data.

In	1999,	we	acquired	Direct	Radiography	Corp.	and	in	2000	we	acquired	the	U.S.	assets	of	Trex	Medical.	The	purchase	accounting	method	under	APB	No.	16	was used	for	both	of	these	transactions.	Included	in	the	fiscal	2000	financial	data	are	acquisition	related	pre-tax	charges	of	$13.3	million	related	to	the	Trex	Medical acquisition.	Included	in	the	fiscal	2001	financial	data	are	(i)	a	$2.5	million	reduction	in	expenses	as	a	result	of	the	settlement	of	the	final	purchase	price	and	reassessment of	reserves	from	the	Trex	Medical	acquisition,	(ii)	the	recognition	of	$2.1	million	of	other	revenue	previously	deferred	and	a	$500,000	reduction	to	cost	of	product	sales due	to	excess	warranty	reserves	related	to	the	settlement	of	the	litigation	with	Fleet	Business	Credit,	LLC,	(iii)	restructuring	charges	of	approximately	$1.0	million	for severance	related	expenses	resulting	from	reductions	in	our	workforce	and	(iv)	a	$500,000	charge	from	the	relocation	of	the	Fluoroscan	mini	C-arm	manufacturing facility	from	Illinois	to	Massachusetts.	Included	in	the	fiscal	2002	financial	data	are	restructuring	costs	of	approximately	$2.1	million	related	to	closing	the	conventional general	radiography	manufacturing	facility	and	to	our	continued	efforts	to	streamline	operations.	In	the	fourth	quarter	of	2003,	we	adopted	EITF	00-21,	Revenue Arrangements	with	Multiple	Deliverables,	as	a	cumulative	effect	adjustment	for	a	change	in	accounting	principle	accordingly,	the	revenue	representing	the	fair	value	of services	not	performed	at	the	time	of	product	shipment	such	as	installation	and	training	are	deferred	and	recognized	as	performed.	Additionally,	revenue	related	to installation	and	training	activities	have	been	classified	as	service	and	other	revenue.	All	prior	periods	presented	have	been	reclassified	to	conform	with	the	current-period presentation	as	discussed	in	Note	2	to	our	Consolidated	Financial	Statements.

|  | September	27,<br>2003 | September	28,<br>2002 | September	29,<br>2001 | September	30,<br>2000 | September	25,<br>1999 |
| :--- | :--- | :--- | :--- | :--- | :--- |
|  |  |  | (In\tthousands,\texcept\tper\tshare\tdata) |  |  |
| Consolidated\tStatement\tof\tOperations\tData |  |  |  |  |  |
| Revenues: |  |  |  |  |  |
| Product\tsales | $156,734 | $144,684 | $135,067 | $74,507 | $68,261 |
| Service\tand\tother\trevenue | 47,301 | 45,508 | 45,129 | 19,830 | 16,417 |
|  | 204,035 | 190,192 | 180,196 | 94,337 | 84,678 |
| Costs\tand\tExpenses: |  |  |  |  |  |
| Cost\tof\tproduct\tsales | 86,506 | 84,230 | 85,712 | 46,728 | 36,039 |
| Cost\tof\tservice\tand\tother\trevenue | 43,949 | 34,146 | 33,734 | 18,726 | 15,909 |
| Research\tand\tdevelopment | 18,381 | 20,362 | 23,328 | 22,178 | 12,664 |
| Selling\tand\tmarketing | 29,978 | 28,319 | 33,858 | 22,623 | 18,581 |
| General\tand\tadministrative | 22,196 | 18,908 | 20,852 | 16,441 | 10,963 |
| Restructuring\tand\trelocation | — | 2,070 | 1,518 | — | — |
|  | 201,010 | 188,035 | 199,002 | 126,696 | 94,156 |
| Income\t(loss)\tfrom\toperations | 3,025 | 2,157 | (18,806) | (32,359) | (9,478) |
| Interest\tincome | 685 | 573 | 1,027 | 3,567 | 4,204 |
| Interest/other\texpense | (445) | (2,980) | (2,902) | (227) | (548) |
| Income\t(loss)\tbefore\tprovision\t(benefit)\tfor\tincome |  |  |  |  |  |
| taxes\tand\tcumulative\teffect\tof\tchange\tin |  |  |  |  |  |
| accounting\tprinciple | 3,265 | (250) | (20,681) | (29,019) | (5,822) |
| Provision\t(benefit)\tfor\tincome\ttaxes | 176 | (429) | 169 | (10,400) | (2,075) |
| Income\t(loss)\tbefore\tcumulative\teffect\tof\tchange\tin |  |  |  |  |  |
| accounting\tprinciple | 3,089 | 179 | (20,850) | (18,619) | (3,747) |
| Cumulative\teffect\tof\tchange\tin\taccounting\tprinciple | (207) | — | — | — | — |
| Net\tincome\t(loss) | $2,882 | $179 | $(20,850) | $(18,619) | $(3,747) |
| Basic\tincome\t(loss)\tper\tcommon\tand\tcommon |  |  |  |  |  |
| equivalent\tshare: |  |  |  |  |  |
| Income\t(loss)\tbefore\tcumulative\teffect\tof |  |  |  |  |  |
| change\tin\taccounting\tprinciple | $0.16 | $0.01 | $(1.35) | $(1.22) | $(0.27) |
| Cumulative\teffect\tof\tchange\tin\taccounting |  |  |  |  |  |
| principle | (0.01) | — | — | — | — |
| Net\tincome\t(loss) | $0.15 | $0.01 | $(1.35) | $(1.22) | $(0.27) |
| Diluted\tincome\t(loss)\tper\tcommon\tand\tcommon |  |  |  |  |  |
| equivalent\tshare: |  |  |  |  |  |
| Income\t(loss)\tbefore\tcumulative\teffect\tof |  |  |  |  |  |
| change\tin\taccounting\tprinciple | $0.15 | $0.01 | $(1.35) | $(1.22) | $(0.27) |
| Cumulative\teffect\tof\tchange\tin\taccounting |  |  |  |  |  |
| principle | (0.01) | — | — | — | — |
| Net\tincome\t(loss) | $0.14 | $0.01 | $(1.35) | $(1.22) | $(0.27) |
| Weighted\taverage\tnumber\tof\tcommon\tshares |  |  |  |  |  |
| outstanding: |  |  |  |  |  |
| Basic | 19,629 | 18,419 | 15,475 | 15,320 | 13,950 |
| Diluted | 20,130 | 19,192 | 15,475 | 15,320 | 13,950 |
| Consolidated\tBalance\tSheet\tData |  |  |  |  |  |
| Working\tcapital | $103,862 | $98,472 | $44,679 | $53,022 | $89,823 |
| Total\tassets | 188,603 | 184,147 | 194,863 | 219,145 | 175,770 |
|  | 1,550 | 2,268 | 28,416 | 25,000 | — |

# Total	stockholders'	equity

# Item		7. 	 Management's	Discussion	and	Analysis	of	Financial	Condition	and	Results	of	Operations.

The	following	discussion	and	analysis	should	be	read	in	conjunction	with	the	"Selected	Consolidated	Financial	Data"	and	the	Consolidated	Financial Statements	included	elsewhere	in	this	report	and	the	information	described	under	the	caption	"Risk	Factors"	below.

# CRITICAL	ACCOUNTING	POLICIES

The	discussion	and	analysis	of	our	financial	condition	and	results	of	operations	are	based	upon	our	consolidated	financial	statements,	which	have	been	prepared	in accordance	with	accounting	principles	generally	accepted	in	the	U.S.	The	preparation	of	these	financial	statements	requires	us	to	make	estimates	and	judgments	that affect	the	reported	amounts	of	assets,	liabilities,	revenues	and	expenses,	and	related	disclosure	of	contingent	assets	and	liabilities.	On	an	on-going	basis,	we	evaluate	our estimates,	including	those	related	to	customer	programs	and	incentives,	product	returns,	bad	debts,	inventories,	investments,	intangible	assets,	income	taxes,	warranty obligations,	restructuring	and	contingencies	and	litigation.	We	base	our	estimates	on	historical	experience	and	on	various	other	assumptions	that	are	believed	to	be reasonable	under	the	circumstances,	the	results	of	which	form	the	basis	for	making	judgments	about	the	carrying	values	of	assets	and	liabilities	that	are	not	readily apparent	from	other	sources.	Actual	results	may	differ	from	these	estimates	under	different	assumptions	or	conditions.

We	believe	the	following	critical	accounting	policies	affect	our	more	significant	judgments	and	estimates	used	in	the	preparation	of	our	consolidated	financial statements.

# Inventory

Our	inventories	include	material,	labor	and	overhead,	and	are	stated	at	the	lower	of	cost	(first-in,	first-out)	or	market.	As	a	designer	and	manufacturer	of	high technology	medical	equipment,	we	may	be	exposed	to	a	number	of	economic	and	industry	factors	that	could	result	in	portions	of	our	inventory	becoming	either	obsolete or	in	excess	of	anticipated	usage.	These	factors	include,	but	are	not	limited	to,	technological	changes	in	our	markets,	our	ability	to	meet	changing	customer	requirements, competitive	pressures	in	products	and	prices,	reliability	and	replacement	of	and	the	availability	of	key	components	from	our	suppliers.	Our	policy	is	to	establish inventory	reserves	when	conditions	exist	that	suggest	that	our	inventory	may	be	in	excess	of	anticipated	demand	or	is	obsolete	based	upon	our	assumptions	about	future demand	for	our	products	and

market	conditions.	We	regularly	evaluate	our	ability	to	realize	the	value	of	our	inventory	based	on	a	combination	of	factors	including	the	following:	historical	usage rates,	forecasted	sales	or	usage,	product	end	of	life	dates,	estimated	current	and	future	market	values	and	new	product	introductions.	Assumptions	used	in	determining our	estimates	of	future	product	demand	may	prove	to	be	incorrect,	in	which	case	the	provision	required	for	excess	and	obsolete	inventory	would	have	to	be	adjusted	in the	future.	If	inventory	is	determined	to	be	overvalued,	we	would	be	required	to	recognize	such	costs	as	cost	of	goods	sold	at	the	time	of	such	determination.	Although every	effort	is	made	to	ensure	the	accuracy	of	our	forecasts	of	future	product	demand,	any	significant	unanticipated	changes	in	demand	could	have	a	significant	negative impact	on	the	value	of	the	our	inventory	and	our	reported	operating	results.	Additionally,	purchasing	requirements	and	alternative	usage	avenues	are	explored	within these	processes	to	mitigate	inventory	exposure.	When	recorded,	our	reserves	are	intended	to	reduce	the	carrying	value	of	our	inventory	to	its	net	realizable	value.

# Allowance	for	Doubtful	Accounts

We	maintain	allowances	for	doubtful	accounts	for	estimated	losses	resulting	from	the	inability	of	our	customers	to	make	required	payments.	We	regularly evaluate	the	collectibility	of	our	trade	receivables	based	on	a	combination	of	factors,	which	may	include	dialogue	with	the	customer	to	determine	the	cause	of	non- payment,	the	use	of	collection	agencies,	and/or	the	use	of	litigation.	In	the	event	it	is	determined	that	the	customer	may	not	be	able	to	meet	its	full	obligation	to	us,	we record	a	specific	allowance	to	reduce	the	related	receivable	to	the	amount	that	we	expect	to	recover	given	all	information	present.	We	perform	ongoing	credit	evaluations of	our	customers	and	adjust	credit	limits	based	upon	payment	history	and	our	assessment	of	the	customer's	current	credit	worthiness.	We	continuously	monitor collections	from	our	customers	and	maintain	a	provision	for	estimated	credit	losses	based	upon	our	historical	experience	and	any	specific	customer	collection	issues	that we	have	identified.	While	such	credit	losses	have	historically	been	within	our	expectations	and	the	provisions	established,	we	cannot	guarantee	that	we	will	continue	to experience	the	same	credit	loss	rates	in	the	future.	If	the	financial	condition	of	our	customers	were	to	deteriorate,	resulting	in	an	impairment	of	their	ability	to	make payments,	additional	allowances	may	be	required.	Our	allowance	for	doubtful	accounts	was	$3.5	million,	$4.7	million	and	$4.9	million	in	fiscal	2003,	2002	and	2001, respectively.	The	decrease	in	the	reserve	in	fiscal	2003	was	primarily	attributable	to	our	write	off	of	reserves	and	accounts	receivable	related	to	financed	sales	in	Latin America.

# Revenue	Recognition

Revenue.	We	recognize	product	revenue	upon	shipment,	provided	that	there	is	persuasive	evidence	of	an	arrangement,	there	are	no	uncertainties	regarding acceptance,	the	sales	price	is	fixed	or	determinable	and	collection	of	the	resulting	receivable	is	probable.	Generally,	our	product	arrangements	are	multiple	element arrangements,	including	services	such	as	installation	and	training.	Beginning	in	the	fourth	quarter	of	fiscal	2003,	we	must	account	for	these	arrangements	in	accordance with	EITF	00-21,	Accounting	for	Revenue	Arrangements	with	Multiple	Deliverables.	Based	on	the	terms	and	conditions	of	the	product	arrangements,	we	have	concluded that	these	services	can	be	accounted	for	separately	from	the	product	element	as	our	product	has	value	to	our	customers	on	a	stand-alone	basis	and	we	have	objective	and reliable	evidence	of	the	fair	value	of	such	services.	Accordingly,	service	revenue	representing	the	fair	value	of	services	not	yet	performed	at	the	time	of	product	shipment will	be	deferred	and	recognized	as	such	services	are	performed.	The	residual	revenue	under	the	product	arrangement	will	be	recognized	as	product	revenue	upon shipment.	We	adopted	EITF	00-21	as	a	cumulative	effective	of	a	change	in	accounting	principle	in	accordance	with	APB	20,	Accounting	Changes.	In	connection	with the	adoption	of	ETIF	00-21,	we	reclassified	$4.2	million	and	$2.9	million	of	product	revenue	to	service	revenue	for	the	years	ended	September	28,	2002	and	September 29,	2001,	respectively.

We	recognize	product	revenue	upon	the	completion	of	installation	for	shipments	that	require	more	than	perfunctory	obligations	at	the	time	of	shipment, specifically	for	our	digital	imaging	systems.	A	provision	is	made	at	that	time	for	estimated	warranty	costs	to	be	incurred.

Service	and	other	revenues,	which	primarily	includes	maintenance	contracts,	replacement	parts,	non-warranty	repair	services,	installation	and	training	services, and	fee-per-scan	revenue	are	recognized	ratably	over	the	contract	period	for	maintenance	contracts,	at	the	time	of	shipment	for	replacement	parts,	as	the	service	is rendered	for	repair,	installation	and	training	services	and	as	the	fees	are	collected	for	fee-per-scan	revenue.

Product	Warranties.	Products	sold	are	generally	covered	by	a	warranty	for	a	period	of	one	year.	We	accrue	a	warranty	reserve	at	the	time	of	revenue	recognition for	estimated	costs	to	provide	warranty	services.	Our	estimate	of	costs	to	service	our	warranty	obligations	is	based	on	historical	experience	and	expectation	of	future conditions.	To	the	extent	we	experience	increased	or	decreased	warranty	claim	activity	or	increased	or	decreased	costs	associated	with	servicing	those	claims,	our warranty	accrual	will	increase	or	decrease,	respectively,	resulting	in	decreased	or	increased	gross	profit.	Our	warranty	accrual	was	approximately	$4.5	million,	$4.8 million	and	$6.2	million	in	fiscal	2003,	2002	and	2001,	respectively.	The	decrease	in	this	accrual	over	the	past	three	fiscal	years	is	directly	attributable	to	our	decision	to eliminate	the	unprofitable	conventional	general	radiography	product	lines	which	had	warranty	periods	of	up	to	five	years.	Partially	offsetting	this	decrease	in	fiscal	2003 is	an	increase	in	our	warranty	accrual	for	our	increase	in	our	digital	systems	revenues.

# Income	Taxes

We	account	for	income	taxes	under	SFAS	No.	109,	"Accounting	for	Income	Taxes".	This	statement	requires	that	we	recognize	a	current	tax	liability	or	asset	for current	taxes	payable	or	refundable	and	a	deferred	tax	liability	or	asset	for	the	estimated	future	tax	effects	of	temporary	differences	and	carryforwards	to	the	extent	they are	realizable.	We	record	a	valuation	allowance	to	reduce	our	deferred	tax	assets	to	the	amount	that	is	more	likely	than	not	to	be	realized.	While	we	have	considered future	taxable	income	and	ongoing	prudent	and	feasible	tax	planning	strategies	in	assessing	the	need	for	the	valuation	allowance,	in	the	event	we	were	to	determine	that we	would	be	able	to	realize	our	deferred	tax	assets	in	the	future	in	excess	of	the	net	recorded	amount,	an	adjustment	to	the	deferred	tax	asset	would	increase	income	in the	period	such	determination	was	made.	Likewise,	should	we	determine	that	we	would	not	be	able	to	realize	all	or	part	of	our	net	deferred	tax	asset	in	the	future,	an adjustment	to	the	deferred	tax	asset	would	be	charged	to	income	in	the	period	such	determination	was	made.

During	fiscal	2002	we	recorded	an	increase	in	our	valuation	allowance	against	a	portion	of	our	remaining	net	deferred	tax	asset.	The	valuation	allowance primarily	relates	to	net	operating	losses	generated	in	fiscal	2001	and	2000	for	which	we	can	only	realize	a	benefit	through	the	generation	of	future	taxable	income	and	to certain	deferred	tax	assets	in	foreign	jurisdictions,	for	which	realization	is	uncertain.	Our	net	deferred	tax	asset	is	currently	$3.6	million	and	we	believe	it	will	be	fully realized	in	the	next	12-24	months.

We	do	not	provide	for	U.S.	income	taxes	on	earnings	of	our	subsidiaries	outside	of	the	U.S.	Our	intention	is	to	reinvest	these	earnings	permanently	or	to	repatriate the	earnings	only	when	tax-effective	to	do	so.	It	is	not	practical	to	estimate	the	amount	of	additional	taxes	that	might	be	payable	upon	repatriation	of	foreign	earnings; however,	we	believe	that	U.S.	foreign	tax	credits	would	largely	eliminate	any	U.S.	taxes	or	offset	any	foreign	withholding	taxes.

# Legal	Contingencies

We	are	currently	involved	in	certain	legal	proceedings.	In	connection	with	these	legal	proceedings,	which	we	discuss	in	Note	12	to	our	Consolidated	Financial Statements,	management	periodically	reviews	estimates	of	potential	costs	to	be	incurred	by	us	in	connection	with	the	adjudication	or	settlement,	if	any,	of	these proceedings.	These	estimates	are	developed	in	consultation	with	outside	counsel	and	are	based	on	an	analysis	of	potential	litigation	outcomes	and	settlement	strategies. In	accordance	with	FASB	Statement	No.	5,	Accounting	for	Contingencies,	loss	contingencies	are	accrued	if,	in	the	opinion	of	management,	an	adverse	outcome	is probable	and	such	outcome	can	be	reasonably	estimated.	We	do	not	believe	that	these

proceedings	will	have	a	material	adverse	effect	on	our	financial	position;	however,	it	is	possible	that	future	results	for	any	particular	quarter	or	annual	period	may	be materially	affected	by	changes	in	our	assumptions	or	the	effectiveness	of	our	strategies	relating	to	these	proceedings.

# Lease	Accounting

In	September	2002,	we	completed	a	sale/leaseback	of	our	Bedford,	Massachusetts	and	Danbury,	Connecticut	facilities,	resulting	in	a	loss	of	$93,000,	which	is included	in	interest/other	expense	in	our	consolidated	financial	statements.	Under	the	terms	of	the	sale/leaseback,	we	entered	into	a	20-year	operating	lease	for	two facilities	requiring	annual	rent	payments	of	$3.2	million.	In	applying	the	provisions	of	SFAS	No.	13,	Lease	Accounting,	certain	judgments	in	estimates	must	be	made	to determine	if	the	agreement	should	be	accounted	for	as	a	capital	or	operating	lease.	Most	significant	is	the	determination	of	our	incremental	borrowing	rate	in	calculating the	present	value	of	minimum	lease	payments	in	the	event	the	rate	implicit	in	the	lease	is	unknown.	In	order	for	a	lease	agreement	to	be	accounted	as	an	operating	lease the	present	value	of	the	minimum	lease	payments	may	not	be	greater	than	90%	of	the	fair	value	of	the	leased	asset.	In	determining	our	incremental	borrowing	rate	we considered,	among	other	things,	quotes	obtained	from	several	lenders	assuming	we	were	financing	a	purchase	of	the	facility.	We	used	an	incremental	borrowing	rate	of 10%	which	we	believe	to	be	conservative	compared	to	the	range	of	rates	quoted	by	several	lenders.

We	are	engaged	in	the	development,	manufacture	and	distribution	of	proprietary	X-ray,	digital	X-ray	and	other	medical	imaging	systems.	Our	businesses	are reported	as	five	segments:	osteoporosis	assessment;	mammography;	digital	imaging;	mini	C-arm	imaging;	and	conventional	general	radiography.

Our	osteoporosis	assessment	products	primarily	consist	of	dual-energy	X-ray	bone	densitometry	systems	and,	to	a	lesser	extent,	an	ultrasound-based	osteoporosis assessment	product.	Bone	densitometry	is	the	precise	measurement	of	bone	density	to	assist	in	the	diagnosis	and	monitoring	of	osteoporosis	and	other	metabolic	bone diseases	that	can	lead	to	debilitating	bone	fractures.	Our	mammography	products	include	a	broad	product	line	of	breast	imaging	products,	including	film-based	and digital	mammography	systems	and	breast	biopsy	systems.	Our	digital	imaging	products	include	general	radiographic	systems	and	a	digital	component	for	original equipment	manufacturers	to	incorporate	into	their	own	equipment.	Our	mini	C-arm	products	are	low	intensity,	real-time	mini	C-arm	X-ray	systems	used	primarily	for minimally	invasive	surgery	on	a	patient's	extremities.	In	January	2002,	we	closed	the	manufacturing	facility	for	the	conventional	general	radiography	products,	however, we	continue	to	service	and	support	most	of	these	product	lines.

# Acquisitions,	Recent	Developments	and	Restructuring	and	Relocation	Charges

Trex	Medical	Acquisition.	On	September	15,	2000,	we	acquired	the	U.S.	business	assets	of	Trex	Medical	in	exchange	for	approximately	$30.0	million	in	cash	and a	note	in	the	amount	of	$25.0	million.	The	cash	portion	of	the	purchase	price	was	subject	to	adjustment	based	upon	the	working	capital	of	Trex	Medical	as	of	the	closing. Following	the	acquisition,	we	disagreed	with	Trex	Medical's	calculation	of	its	working	capital	as	reflected	on	its	closing	balance	sheet.	In	accordance	with	the	dispute resolution	procedures	set	forth	in	the	purchase	agreement,	we	and	Thermo	Electron	Corporation,	sole	shareholder	of	Trex	Medical,	jointly	sought	the	assistance	of	an independent	arbitrator	to	determine	the	closing	working	capital.

In	June	2001,	the	independent	arbitrator	determined	that	adjustments	of	approximately	$2.8	million,	in	addition	to	$119,000	of	adjustments	agreed	to	by	Thermo Electron	Corporation	before	submission	to	arbitration,	were	required	to	the	closing	balance	sheet	submitted	by	Trex	Medical.	This	resulted	in	a	payment	of approximately	$932,000	to	us	as	an	adjustment	to	the	cash	portion	of	the	purchase	price.

In	addition,	in	November	2001,	we	finalized	the	plan	to	close	the	conventional	general	radiography	manufacturing	facility	located	in	Littleton,	Massachusetts	that we	had	acquired	as	part	of	the	Trex	Medical

acquisition.	In	connection	with	the	closure	of	the	Littleton	facility,	we	eliminated	approximately	80	employment	positions	and	incurred	a	restructuring	charge,	primarily related	to	severance	costs,	of	approximately	$1.0	million,	in	fiscal	2002.

Also,	as	a	result	of	the	arbitration	settlement,	we	evaluated	the	components	of	the	$2.8	million	of	adjustments	and	determined	that	approximately	$2.1	million	of reserves	and	accruals	provided	for	through	charges	to	earnings	in	the	fourth	quarter	of	fiscal	2000	should	be	recorded	in	our	allocation	of	the	purchase	price	for	this acquisition.	Included	in	our	results	for	the	twelve	month	period	ended	September	29,	2001	are	expense	reductions	totaling	$2.5	million	related	to	the	purchase	price reallocation	as	follows:

•$1.7	million	cost	of	product	sales	reduction	for	warranty	accrual	and	for	performance	upgrades	on	prior	sales;

•$376,000	selling	expense	reduction	for	accrued	sales	commissions;	and

•$428,000	general	and	administrative	expense	reduction	for	various	expense	accruals	and	bad	debt	expense.

Fleet	Business	Credit,	LLC	Litigation	Settlement.	In	August	2001,	we	settled	our	dispute	with	Fleet	Business	Credit,	LLC	("Fleet")	relating	to	our	Strategic Alliance	Program	under	which	Fleet,	formerly	Sanwa	Business	Credit	Corp.,	acquired	our	bone	densitometry	systems	to	lease	to	physicians	on	a	fee-per-scan	basis throughout	the	United	States.

Under	the	settlement	agreement,	the	parties	dismissed	their	claims	and	entered	mutual	releases.	In	addition,	we	paid	Fleet	$1.5	million	in	cash	and	executed	a	$1.6 million	unsecured	note	payable.	The	note	bears	interest	at	Fleet's	prime	rate	plus	1%	with	the	full	amount	of	principal	to	be	paid	on	August	10,	2004.	We	further	agreed to	continue	to	assist	Fleet	in	remarketing	returned	systems,	as	requested	by	Fleet,	based	on	separately	negotiated	market	rate	terms	on	a	prepaid	basis.	We	also	continue to	be	entitled	to	benefit	from	excess	lease	and	other	payments	made	to	Fleet	under	the	program,	which	will	offset	amounts	due	under	the	note	payable.

Under	the	terms	of	the	original	agreement	with	Fleet's	predecessor,	Sanwa,	we	were	contingently	liable	for	a	certain	amount	per	system	sold	under	the	agreement. We	recorded	the	amount	for	which	we	were	contingently	liable	as	deferred	revenue.	Based	on	the	settlement,	we	reduced	deferred	revenue	for	the	$1.5	million	cash payment	and	reflected	$1.6	million	as	a	long	term	note	payable	in	our	consolidated	balance	sheet	as	of	September	29,	2001.	We	have	also	recognized	as	revenue	the remaining	deferred	revenue	amounts	of	$2.1	million.	In	addition,	we	reversed	$500,000	of	related	warranty	reserves,	which	were	no	longer	necessary	as	a	result	of	the settlement,	through	a	reduction	of	cost	of	product	sales,	for	a	total	positive	impact	on	earnings	relating	to	the	Fleet	settlement	of	approximately	$2.6	million.

Restructuring	and	Relocation	Charges.	In	addition	to	the	adjustments	and	charges	described	above,	our	results	for	the	year	ended	September	29,	2001	include	the following	restructuring	and	relocation	charges:

•On	August	13,	2001	we	announced	a	restructuring	plan	focusing	primarily	on	a	company-wide	cost	savings	initiative	which	includes	a	planned	reduction	of the	workforce	by	10%,	or	approximately	eighty	employees,	and	otherwise	trimming	operating	expenses	in	each	of	our	business	units.	As	a	result	of	the	plan, we	incurred	a	restructuring	charge,	primarily	related	to	severance	costs,	of	approximately	$1.0	million	in	fiscal	2001.

•We	incurred	approximately	$500,000	of	expenses	related	to	the	move	of	the	Fluoroscan	mini	C-arm	product	line	to	the	corporate	headquarters	in	Bedford, Massachusetts	including	approximately	$200,000	of	moving	costs,	$100,000	of	severance	costs,	$100,000	to	vacate	the	facility	and	$100,000	of	other	costs.

For	the	year	ended	September	28,	2002	we	incurred	approximately	$2.1	million	of	severance	costs	related	to	the	closing	of	the	conventional	general	radiography manufacturing	facility,	closure	of	our	direct	sales	and	service	office	in	Paris,	France	and	our	continuing	efforts	to	streamline	operations.

Public	Offering	of	Common	Stock.	In	December	2001,	we	sold	3,000,000	shares	of	our	common	stock	to	the	public	at	a	price	of	$9.00	per	share.	We	received	net proceeds	from	this	offering	of	approximately	$24.8	million.

Sale/Leaseback	Transaction.	In	September	2002,	we	completed	a	sale/leaseback	transaction	for	our	headquarters	and	manufacturing	facility	located	in	Bedford, Massachusetts	and	our	Lorad	manufacturing	facility	in	Danbury,	Connecticut.	The	transaction	resulted	in	net	proceeds	to	us	of	$31.4	million.	The	new	lease	for	these facilities,	including	the	associated	land,	has	a	term	of	20	years,	with	four	five-year	renewal	terms,	which	we	may	exercise	at	our	option.	The	basic	rent	for	the	facilities	is $3.2	million	per	year,	which	is	subject	to	adjustment	for	increases	in	the	consumer	price	index.	In	addition,	we	are	required	to	maintain	the	facilities	during	the	term	of the	lease	and	to	pay	all	taxes,	insurance,	utilities	and	other	costs	associated	with	those	facilities,	as	well	as	comply	with	financial	covenants.	Of	the	$31.4	million	in	net proceeds	we	received	from	this	transaction,	we	used	$26.3	million	to	immediately	repay	the	Trex	Medical	$25.0	million	note	payable	plus	accrued	interest	of	$1.3 million.	The	effect	of	the	sale/leaseback	transaction	was	to	eliminate	interest	expense	with	respect	to	the	Trex	Medical	Note	and	the	related	depreciation	expense	on	the buildings,	but	on	a	going	forward	basis	to	increase	operating	expenses	as	a	result	of	the	lease	payments.	Under	the	lease,	we	make	customary	representations	and warranties	and	agree	to	certain	financial	covenants	and	indemnities.	In	the	event	we	default	on	the	lease,	the	landlord	may	terminate	the	lease,	accelerate	payments	and collect	liquidated	damages.	At	September	27,	2003	we	were	in	compliance	with	the	covenants	contained	in	the	lease.

# RESULTS	OF	OPERATIONS

The	following	table	sets	forth,	for	the	periods	indicated,	the	percentage	of	total	revenues	represented	by	items	as	shown	in	our	consolidated	statements	of operations.

|  | September	27, | September	28, | September	29, |
| :--- | :--- | :--- | :--- |
|  | 2003 | 2002 | 2001 |
| Revenues: |  |  |  |
| Product\tsales | 76.8% | 76.1% | 75.0% |
| Service\tand\tother\trevenue | 23.2 | 23.9 | 25.0 |
|  | 100.0 | 100.0 | 100.0 |
| Cost\tand\texpenses: |  |  |  |
| Cost\tof\tproduct\tsales | 42.4 | 44.3 | 47.6 |
| Cost\tof\tservice\tand\tother\trevenue | 21.5 | 18.0 | 18.7 |
| Research\tand\tdevelopment | 9.0 | 10.7 | 12.9 |
| Selling\tand\tmarketing | 14.7 | 14.9 | 18.8 |
| General\tand\tadministrative | 10.9 | 9.9 | 11.6 |
| Restructuring | — | 1.1 | 0.8 |
|  | 98.5 | 98.9 | 110.4 |
| Income\t(loss)\tfrom\toperations | 1.5 | 1.1 | (10.4) |
| Interest\tincome | 0.3 | 0.3 | 0.6 |
| Interest/other\texpense | (0.2) | (1.5) | (1.7) |
| Income\t(loss)\tbefore\tincome\ttaxes\tand\tcumulative\teffect\tof\taccounting\tchange | 1.6 | (0.1) | (11.5) |
| Provision\t(benefit)\tfor\tincome\ttaxes | 0.1 | (0.2) | 0.1 |
| Income\t(loss)\tbefore\tcumulative\teffect\tof\taccounting\tchange | 1.5 | 0.1 | (11.6) |
| Cumulative\teffect\tof\taccounting\tchange | (0.1) | — | — |
| Net\tincome\t(loss) | 1.4% | 0.1% | (11.6)% |

# Fiscal	Year	Ended	September	27,	2003	Compared	to	Fiscal	Year	Ended	September	28,	2002

Total	Revenues.	Total	revenues	increased	7%	to	$204.0	million	in	fiscal	2003	from	$190.2	million	in	fiscal	2002.	This	increase	was	primarily	due	to	increased mammography	and	osteoporosis	assessment	product	sales	and,	to	a	lesser	extent,	increased	service	revenues.	Partially	offsetting	these	increases	was	a	decrease	in	our conventional	general	radiography	product	revenues	due	to	our	phase-out	of	this	unprofitable	product	line	during	fiscal	2002,	and	slightly	lower	mini	C-arm	sales.

Product	Sales.	Product	sales	increased	8%	to	$156.7	million	in	fiscal	2003	from	$144.7	million	in	fiscal	2002.	Product	sales	in	our	mammography	business increased	approximately	16%	to	$68.7	million	in	fiscal	2003	from	$59.1	million	in	fiscal	2002.	This	increase	was	primarily	due	to	increasing	sales	of	Selenia,	our	full field	digital	mammography	system	introduced	in	the	fourth	quarter	of	fiscal	2002,	an	increase	in	the	number	of	multicare	stereotactic	tables	sold	and,	to	a	lesser	extent, higher	average	selling	prices	of	the	MIV	analog	mammography	product	line.	These	increases	were	partially	offset	by	fewer	analog	systems	sold	primarily	in	the	United States.

Osteoporosis	assessment	product	sales	increased	14%	to	$51.9	million	in	fiscal	2003	from	$45.5	million	in	fiscal	2002.	This	increase	was	primarily	due	to	an increase	in	the	number	of	systems	sold	internationally	and,	to	a	lesser	extent,	to	the	initial	shipments	of	our	new	Discovery	line	of	bone	densitometers	at	higher	average selling	prices.

Digital	imaging	product	sales	increased	6%	to	$21.7	million	in	fiscal	2003	from	$20.5	million	in	fiscal	2002.	This	increase	was	primarily	due	to	an	increase	in	the average	selling	prices	of	digital	plates	sold	resulting	in	higher	revenues	on	fewer	plates	sold	and	an	increase	in	the	number	of	general	radiography	digital	systems.	For both	digital	plates	and	digital	systems	there	was	a	sharp	increase	in	international	sales	offset	by	a	decline	in	sales	in	the	United	States.	At	the	beginning	of	fiscal	2004	we started	to	move	away	from	selling	our	own	general	radiography	digital	X-ray	systems	in	competition	with	our	OEM	partners	in	general	digital	radiography,	and	began	to shift	these	resources	to	our	core	women's	health	products	–	mammography	and	osteoporosis	assessment	systems	–	while	selling	our	DirectRay	detectors	to	OEM's	for incorporation	in	their	own	line	of	digital	radiography	systems.

Mini	c-arm	product	sales	decreased	3%	to	$14.3	million	in	fiscal	2003	from	$14.8	million	in	fiscal	2002.	This	decrease	was	primarily	due	to	lower	average	selling prices	in	the	United	States	and	a	decrease	in	the	number	of	systems	sold	internationally.

Conventional	general	radiography	product	sales	decreased	to	$46,000	in	fiscal	2003	from	$4.8	million	in	fiscal	2002.	This	decreases	was	due	to	our	decision	to phase-out	our	unprofitable	conventional	general	radiography	product	line,	which	was	completed	in	fiscal	2002.

In	fiscal	2003,	approximately	68%	of	product	sales	were	generated	in	the	United	States,	17%	in	Europe	and	15%	in	other	international	markets.	In	fiscal	2002, approximately	80%	of	product	sales	were	generated	in	the	United	States,	9%	in	Europe	and	11%	in	other	international	markets.

Service	and	Other	Revenue.	Service	and	other	revenue	increased	to	$47.3	million	in	fiscal	2003	from	$45.5	million	in	fiscal	2002.	This	increase	was	primarily due	to	increased	service	revenues	primarily	in	our	mammography	business	as	a	result	of	our	assuming	service	responsibilities	previously	performed	by	a	former distributor	and	increased	service	contract	revenues	in	our	osteoporosis	assessment	and	digital	imaging	businesses.	Partially	offsetting	these	increases	was	a	decrease	in other	revenue	from	the	licensing	of	certain	mammography	patented	technology	and	additional	fee-per-scan	revenues	as	compared	to	fiscal	2002.

In	the	second	quarter	of	fiscal	2003,	we	terminated	an	independent	dealer	who	represented	almost	one-half	of	the	U.S.	market	for	our	mammography	products	in fiscal	2002	and	assumed	full	sales	and	service	responsibility	in	these	geographic	locations	on	a	direct	basis.	To	provide	the	necessary	sales	coverage	and	service	support we	hired	10	sales	and	28	service	personnel.	We	expect	the	added	costs	of	the	new	service	personnel	to	be	offset	by	higher	margins	for	direct	sales,	as	compared	to	sales generated	from	a	distributor.	These	higher	personnel	costs	will	also	be	offset	by	future	service	revenues	from	service	contracts	and	billings	on	new	sales	and	also	from existing	users	of	Lorad	mammography	equipment	over	time	if	we	are	successful	in	capturing	that	business.

Cost	of	Product	Sales.	The	cost	of	product	sales	decreased	as	a	percentage	of	product	sales	to	55%	in	fiscal	2003	from	58%	in	fiscal	2002.	These	costs	decreased as	a	percentage	of	product	sales	primarily	due	to	improved	gross	margins	recognized	on	the	mammography	and	osteoporosis	assessment	products	as	a	result	of	the increase	in	revenues,	as	well	as	lower	manufacturing	costs	on	the	mini	c-arm	products	and	the	elimination	of	our	unprofitable	conventional	general	radiography	product line	in	the	third	quarter	of	fiscal	2002.	The	increased	volume	has	improved	the	absorption	of	manufacturing	overhead	at	our	manufacturing	facilities	for	those	products. Our	DRC	subsidiary	continues	to	have	significant	fixed	manufacturing	costs	and	is	operating	significantly	below	manufacturing	capacity.

Costs	of	Service	and	Other	Revenue.	Cost	of	service	and	other	revenue	increased	as	a	percentage	of	service	and	other	revenue	to	93%	in	fiscal	2003	from	75%	in fiscal	2002.	These	costs	increased	as	a	percentage	of	service	and	other	revenue	primarily	due	to	additional	personnel	and	other	costs	in	our	field	service	area	to	expand our	United	States	service	capabilities	for	our	digital	mammography	and	general	radiography	systems	and	to	assume	direct	coverage	of	territories	previously	assigned	to distributors,	as	well	as	to	lower	levels	of	other	revenue.	We	expect	our	costs	of	service	and	other	revenue	to	remain	relatively	high	as	a	percentage	of	service	and	other revenue,	reflecting	our	need	to	hire	the	required	personnel	for	warranty

and	installation	service	in	advance	of	entering	into	service	agreements	in	connection	with	our	transition	to	digital	mammography	and	direct	service	coverage.

Research	and	Development	Expenses.	Research	and	development	expenses	decreased	10%	to	$18.4	million,	9%	of	total	revenues,	in	fiscal	2003	from	$20.4 million,	11%	of	total	revenues,	in	fiscal	2002.	The	decrease	was	primarily	due	to	a	decrease	in	research	and	development	spending	and	personnel	primarily	related	to reduced	spending	on	digital	detectors	at	DRC,	our	phase-out	of	the	conventional	general	radiography	product	line	in	fiscal	2002	and	reduced	spending	related	to	our mammography	business.	These	decreases	were	partially	offset	by	increased	spending	related	to	our	general	radiography	digital	imaging	systems.	Approximately	$8.2 million	and	$8.7	million	of	the	total	of	these	expenses	related	to	the	development	of	digital	mammography	and	digital	general	radiography	systems	and	detectors	at	DRC in	fiscal	2003	and	2002,	respectively.

Selling	and	Marketing	Expenses.	Selling	and	marketing	expenses	increased	6%	to	$30.0	million,	15%	of	total	revenues,	in	fiscal	2003	from	$28.3	million,	15% of	total	revenues,	in	fiscal	2002.	The	increase	was	primarily	due	to	additional	personnel	and	other	costs	incurred	to	expand	our	United	Statues	coverage	of	territories previously	assigned	to	distributors,	and	to	a	lesser	extent,	higher	trade	show	expenses	in	fiscal	2003	compared	to	2002.

General	and	Administrative	Expenses.	General	and	administrative	expenses	increased	17%	to	$22.2	million,	11%	of	total	revenues,	in	fiscal	2003	from	$18.9 million,	10%	of	total	revenues,	in	fiscal	2002.	The	increase	was	primarily	due	to	additional	personnel,	increased	employee	benefit	expenses	and	expenses	related	to	the implementation	of	our	integrated	enterprise	wide	software	application.

Restructuring	Costs.	Restructuring	costs	in	the	first	and	second	quarters	of	fiscal	2002	were	primarily	the	result	of	our	continuing	efforts	to	streamline	operations and	eliminate	unprofitable	product	lines.	In	the	second	quarter	of	fiscal	2002,	we	incurred	severance	costs	of	approximately	$495,000	in	connection	with	the	reduction	of our	workforce	in	the	United	States	and	Europe	by	13	persons	across	all	functional	areas.	In	the	first	quarter	of	fiscal	2002,	we	incurred	a	restructuring	charge	of approximately	$806,000	primarily	comprised	of	severance	costs	related	to	the	termination	of	85	employees	at	the	Littleton	facility.	In	addition,	we	incurred	severance cost	of	approximately	$561,000	and	$208,000	in	connection	with	the	closure	of	our	direct	sales	and	service	office	in	Paris,	France	and	the	continued	reduction	of	Lorad's workforce,	respectively.	The	severance	charges	related	to	the	workforce	reductions	of	5	persons	in	France	and	20	persons	at	Lorad	and	were	across	all	functional	areas.

Interest	Income.	Interest	income	increased	to	$685,000	in	fiscal	2003	from	$573,000	in	fiscal	2002	primarily	due	to	interest	income	related	to	the	note	receivable from	an	officer	and,	to	a	lesser	extent,	additional	interest	collected	from	Latin	American	financed	sales.

Interest/Other	Expense.	In	fiscal	2003	and	2002,	we	incurred	interest	and	other	expense	of	approximately	$445,000	and	$3.0	million,	respectively.	In	fiscal	2003, these	expenses	were	primarily	due	to	the	interest	costs	on	the	Wells	Fargo	Foothill,	Inc.	note	payable.	In	fiscal	2002,	these	expenses	included	interest	costs	of approximately	$700,000	per	quarter	on	the	$25	million	note	payable	issued	in	connection	with	the	Trex	Medical	acquisition,	and	to	a	lesser	extent,	interest	costs	on	the Wells	Fargo	Foothill,	Inc.	note	payable,	foreign	currency	transaction	losses	and	interest	costs	on	a	bank	line	of	credit	used	by	our	European	subsidiaries	to	borrow	funds in	their	local	currencies	to	pay	for	intercompany	sales,	thereby	reducing	the	foreign	currency	exposure	on	those	transactions.	In	September	2002,	we	paid	off	the	note payable	to	Trex	Medical	with	the	proceeds	from	the	sale/leaseback	transaction	of	two	of	our	facilities.	To	the	extent	that	foreign	currency	exchange	rates	fluctuate	in	the future,	we	may	be	exposed	to	continued	financial	risk.	Although	we	have	established	a	borrowing	line	of	credit	denominated	in	the	foreign	currency,	the	euro,	in	which our	subsidiaries	currently	conduct	business	to	minimize	this	risk,	we	cannot	assure	that	we	will	be	successful	or	can	fully	hedge	our	outstanding	exposure.

Provision	(Benefit)	for	Income	Taxes.	We	have	provided	for	certain	minimum	taxes	where	net	operating	losses	cannot	be	used	in	the	current	fiscal	year.	In	fiscal 2002	we	had	a	benefit	for	income	taxes	of	$429,000	as	a	result	of	a	$4.5	million	tax	benefit	recorded	in	the	second	quarter	of	fiscal	2002,	partially	offset	by	a	$3.9 million	tax	provision	recorded	in	the	fourth	quarter	of	fiscal	2002	to	reduce	our	deferred	tax	asset	to	$3.6	million	that	we	believe	will	be	fully	realizable	in	the	next	12	to 24	months.	During	fiscal	2002,	as	a	result	of	the	Economic	Stimulus	Bill	signed	into	law	in	March,	we	filed	carryback	claims	of	approximately	$13.8	million.	Of	this amount,	we	have	received	$12.0	million	in	cash,	and	$1.8	million	which	we	expect	to	receive	in	fiscal	2004	is	included	in	other	current	assets	in	the	accompanying balance	sheet	at	September	27,	2003.

Total	Revenues.	Total	revenues	increased	6%	to	$190.2	million	in	fiscal	2002	compared	to	$180.2	million	in	fiscal	2001.	The	increase	in	revenues	was	primarily due	to	an	increase	in	unit	sales	of	our	mammography	products,	digital	imaging	products	and	to	a	lesser	extent,	mini	C-arm	products.	Partially	offsetting	these	increases was	a	decrease	in	revenues	from	our	conventional	general	radiography	business,	and	to	a	lesser	extent,	a	decrease	in	the	number	of	Sahara	ultrasound	units	sold primarily	in	the	United	States.	We	completed	the	phase-out	of	the	unprofitable	conventional	general	radiography	product	line	during	the	third	quarter	of	fiscal	2002.

Product	Sales.	Product	sales	in	our	mammography	business	increased	approximately	33%	to	$59.1	million	in	fiscal	2002	from	$44.6	million	in	fiscal	2001.	This increase	was	primarily	due	to	an	increase	in	the	number	of	mammography	systems	sold	in	the	United	States	partially	offset	by	fewer	mammography	systems	sold internationally.

Digital	imaging	product	sales	increased	112%	to	$20.5	million	in	fiscal	2002	compared	to	revenues	of	$9.6	million	in	fiscal	2001.	This	increase	was	primarily	due to	an	increase	in	the	number	of	digital	systems	sold	and,	to	a	lesser	extent,	an	increase	in	the	number	of	digital	plates	sold.

Mini	C-arm	product	sales	increased	16%	to	$14.8	million	in	fiscal	2002	from	$12.8	million	in	fiscal	2001.	This	increase	was	primarily	due	to	an	increase	in	the number	of	Premier	systems	sold	in	the	United	States.

Osteoporosis	Assessment	product	sales	decreased	4%	to	$45.5	million	in	fiscal	2002	from	$47.2	million	in	fiscal	2001.	These	revenues	decreased	primarily	due	to a	decrease	in	the	number	of	Sahara	ultrasound	systems	sold	in	the	United	States.

Conventional	general	radiography	product	sales	decreased	77%	to	$4.8	million	in	fiscal	2002	from	$20.9	million	in	fiscal	2001.	This	decrease	was	primarily	due to	our	decision	to	phase-out	our	unprofitable	conventional	general	radiography	product	line	during	fiscal	2002.

In	fiscal	2002,	approximately	80%	of	product	sales	were	generated	in	the	United	States,	9%	in	Europe	and	11%	in	other	international	markets.	In	fiscal	2001, approximately	72%	of	product	sales	were	generated	in	the	United	States,	14%	in	Europe	and	14%	in	other	international	markets.

Service	and	Other	Revenue.	Service	and	other	revenue	increased	slightly	to	$45.5	million	in	fiscal	2002	compared	to	$45.1	million	in	fiscal	2001.	The	increase	in service	and	other	revenue	in	fiscal	2002	was	primarily	the	result	of	increased	installation	and	training	revenues	due	to	an	increase	in	the	number	of	systems	sold	that require	these	services	and	revenue	from	the	licensing	of	certain	digital	imaging	software	and	mammography	patented	technology	in	fiscal	2002.	Partially	offsetting	these increases	was	the	$2.1	million	recognized	in	fiscal	2001	in	connection	with	the	settlement	of	the	Fleet	litigation	and	from	a	reduction	in	sales	of	mammography	product options	in	fiscal	2002.

Costs	of	Product	Sales.	The	cost	of	product	sales	decreased	as	a	percentage	of	product	sales	to	58%	in	fiscal	2002	from	63%	in	fiscal	2001.	Fiscal	2001	cost	of product	sales	includes	a	$1.7	million	reduction	of	expenses,	approximately	2%	of	product	sales,	related	to	the	final	purchase	price	adjustment	of	the	Trex	Medical acquisition.	Our	costs	of	product	sales	decreased	as	a	percentage	of	product	sales	primarily	due	to	improved	gross	margins	recognized	on	the	mammography	and	digital imaging	products	as	a	result	of	a	significant	increase	in	revenues	and	cost	savings	initiatives	enacted	in	the	summer	of	2001.	The	increased	volume	has	improved	the absorption	of	manufacturing	overhead	at	both	facilities.	DRC	continues	to	have	significant	fixed	manufacturing	costs	and	is	operating	significantly	below	manufacturing capacity.	However,	margins	on	these	products	were	positive	for	the	last	three	quarters	of	fiscal	2002	compared	to	negative	margins	for	prior	periods.	Our	gross	margins also	improved	as	a	result	of	the	decrease	in	sales	of	conventional	general	radiography	products	which	have	had	significantly	lower	margins.

Costs	of	Service	and	Other	Revenue.	Cost	of	service	and	other	revenue,	as	a	percentage	of	service	and	other	revenue,	was	75%	in	fiscal	2002	and	fiscal	2001.	In fiscal	2002	improved	margins	resulting	from	our	closure	of	the	conventional	general	radiography	facility	were	offset	by	a	$500,000	reduction	in	expenses	in	2001	related to	the	Fleet	litigation	settlement	and	additional	personnel	and	other	costs	in	2002	in	our	field	service	area	for	our	other	business	segments	due	to	the	increase	in	the number	of	systems	in	our	installed	base.

Research	and	Development	Expenses.	Research	and	development	expenses	decreased	13%	to	$20.4	million,	11%	of	total	revenues,	in	fiscal	2002	from	$23.3 million,	13%	of	total	revenues,	in	fiscal	2001.	This	decrease	was	primarily	due	to	a	decrease	in	research	and	development	spending	and	personnel	primarily	related	to our	cost-saving	initiatives	enacted	in	the	summer	of	2001.	In	addition,	approximately	$6.4	million	and	$5.4	million	of	these	expenses	in	fiscal	2002	and	2001, respectively,	related	to	the	development	of	new	digital	mammography	and	general	radiography	systems	detectors	at	DRC.

Selling	and	Marketing	Expenses.	Selling	and	marketing	expenses	decreased	16%	to	$28.3	million,	15%	of	total	revenues,	in	fiscal	2002	from	$33.9	million,	19% of	total	revenues,	in	fiscal	2001.	The	decrease	in	selling	and	marketing	expenses	was	primarily	due	to	our	reduction	in	personnel	related	to	our	cost-saving	initiatives enacted	during	the	summer	of	2001.

General	and	Administrative	Expenses.	General	and	administrative	expenses	decreased	9%	to	$18.9	million,	10%	of	total	revenues,	in	fiscal	2002	from	$20.9 million,	12%	of	total	revenues,	in	fiscal	2001.	The	decrease	was	primarily	due	to	our	reduction	in	personnel	and	other	cost-savings	initiatives	enacted	during	the	summer of	2001	and,	to	a	lesser	extent,	the	elimination	of	the	legal	expenses	as	a	result	of	the	settlement	of	the	Fleet	litigation	in	August	2001.	In	addition,	in	connection	with	our early	adoption	of	SFAS	142	(see	Note	2	of	our	consolidated	financial	statements)	we	eliminated	approximately	$700,000	of	goodwill	amortization	expense	in	fiscal 2002.

Restructuring	and	Relocation	Charges.	Restructuring	costs	in	fiscal	2002	of	approximately	$2.1	million	were	primarily	the	result	of	our	continuing	efforts	to streamline	operations	and	eliminate	unprofitable	product	lines.	We	incurred	a	restructuring	charge	of	approximately	$806,000	in	the	first	quarter	of	fiscal	2002	primarily comprised	of	severance	costs	related	to	the	termination	of	85	employees	at	the	Littleton	facility.	In	addition,	we	incurred	severance	cost	of	approximately	$561,000	and $208,000	in	connection	with	the	closure	of	our	direct	sales	and	service	office	in	Paris,	France	and	the	continued	reduction	of	Lorad's	workforce,	respectively.	The severance	charges	related	to	the	workforce	reductions	of	5	persons	in	France	and	20	persons	at	Lorad	and	were	across	all	functional	areas.	In	the	second	quarter	of	fiscal 2002,	we	incurred	additional	severance	costs	of	approximately	$495,000	primarily	comprised	of	severance	costs	in	connection	with	the	reduction	of	our	workforce	in	the United	States	and	Europe	by	13	persons	across	all	functional	areas.

Restructuring	and	relocation	costs	of	approximately	$1.5	million	in	fiscal	2001	were	primarily	the	result	of	our	ongoing	efforts	to	streamline	operations. Specifically	in	fiscal	2001,	as	a	result	of	a	reduction	in	our	workforce,	we	incurred	restructuring	charges	of	approximately	$1.0	million,	primarily	related	to	severance related	expenses.	Also	in	fiscal	2001,	we	moved	our	Fluoroscan	operations	from	a	facility	in

Northbrook,	Illinois	to	our	corporate	headquarters	in	Bedford,	Massachusetts.	We	incurred	approximately	$500,000	of	expenses	in	connection	with	this	move.

Interest	Income.	Interest	income	decreased	to	$573,000	in	fiscal	2002	from	$1.0	million	in	fiscal	2001.	This	decrease	was	primarily	attributable	to	reduced interest	rates	on	our	investments.

Interest	/	Other	Expense.	In	fiscal	2002	and	2001,	we	incurred	interest	and	other	expenses	of	approximately	$3.0	million	and	$2.9	million,	respectively.	These expenses	included	interest	costs	of	approximately	$700,000	per	quarter	on	the	$25.0	million	note	payable	issued	in	connection	with	the	Trex	Medical	acquisition,	and	to a	lesser	extent,	interest	costs	related	to	our	lending	arrangement	with	Foothill	Capital	Corporation,	foreign	currency	transaction	gains	and	interest	costs	on	a	bank	line	of credit	used	by	our	European	subsidiaries	to	borrow	funds	in	their	local	currencies	to	pay	for	intercompany	sales,	thereby	reducing	the	foreign	currency	exposure	on those	transactions.	In	September	2002,	we	paid	off	the	$25.0	million	note	payable	to	Trex	Medical	from	the	proceeds	from	the	sale/leaseback	transaction	of	our headquarters	and	manufacturing	facility	located	in	Bedford,	Massachusetts	and	also	our	Lorad	manufacturing	facility	in	Danbury,	Connecticut.	To	the	extent	that	foreign currency	exchange	rates	fluctuate	in	the	future,	we	may	be	exposed	to	continued	financial	risk.	Although	we	have	established	a	borrowing	line	of	credit	denominated	in the	foreign	currency,	the	euro,	in	which	our	subsidiaries	currently	conduct	business	to	minimize	this	risk,	we	cannot	assure	that	we	will	be	successful	or	can	fully	hedge our	outstanding	exposure.

Provision	(Benefit)	for	Income	Taxes.	In	fiscal	2002	we	had	a	benefit	for	income	taxes	of	$429,000	as	a	result	of	the	Economic	Stimulus	Bill	signed	into	law	in that	year.	In	fiscal	2001,	we	recorded	a	tax	provision	for	minimum	state	taxes	as	we	believed	that	it	was	prudent	at	the	time	not	to	benefit	net	operating	losses	that	would only	be	realized	by	generating	sufficient	future	taxable	income.

# Segment	Results	of	Operations

Our	businesses	are	reported	as	five	segments:	Osteoporosis	Assessment;	Mammography;	Digital	Imaging;	Mini	C-arm	Imaging;	and	General	Radiography.	The accounting	policies	of	the	segments	are	the	same	as	those	described	in	the	footnotes	to	the	accompanying	consolidated	financial	statements.	We	measure	segment performance	based	on	total	revenues	and	operating	income	or	loss.	Revenues	from	each	of	these	segments	are	described	above.	The	discussion	that	follows	is	a summary	analysis	of	the	primary	changes	in	operating	income	or	loss	by	segment.

Osteoporosis	Assessment.	Reported	operating	income	for	the	osteoporosis	assessment	business	segment	was	$10.2	million	for	fiscal	2003	compared	to	$6.5 million	in	fiscal	2002.	The	improvement	in	operating	income	for	this	business	segment	for	fiscal	2003	was	primarily	due	to	an	increase	in	service	and	other	revenue gross	profits	as	a	result	of	higher	service	revenues	together	with	lower	costs	and	to	a	lesser	extent,	improved	gross	profits	from	an	increase	in	product	sales.	These increased	gross	profits	were	partially	offset	by	increased	general	and	administrative	costs.

Mammography.	Reported	operating	income	for	the	mammography	segment	was	$4.3	million	in	fiscal	2003	and	was	$4.2	million	in	fiscal	2002.	Improvements	in operating	income	in	the	current	year	were	primarily	due	to	increased	product	revenues	and	improved	product	gross	margin	and,	to	a	lesser	extent,	a	decrease	in restructuring	costs	incurred	in	fiscal	2002.	These	improvements	were	offset	by	additional	personnel	and	other	costs	in	the	field	service	and	sales	areas	to	expand	our United	States	service	capabilities	for	our	digital	mammography	products	and	to	assume	direct	coverage	of	territories	previously	assigned	to	distributors	and,	to	a	lesser extent,	increased	marketing	costs	related	to	our	major	trade	show.

Digital	Imaging.	The	digital	imaging	business	operating	loss	increased	42%	to	$14.6	million	in	fiscal	2003	from	$10.3	million	for	fiscal	2002.	This	increase	was primarily	due	to	a	reduction	in	both	gross	profit	and	gross	margins	related	to	an	increase	in	manufacturing	costs	of	the	digital	detectors	due	to	vendor	quality	problems, increased	personnel	and	other	costs	in	cost	of	service	and	selling	expenses	to	provide	direct	service	and	sales	coverage	for	our	digital	radiography	products,	increased tradeshow	expenses	and	an	increase	in

general	and	administrative	expenses.	At	the	beginning	of	fiscal	2004	we	started	to	move	away	from	selling	our	own	general	digital	X-ray	systems	in	competition	with our	OEM	partners	in	general	digital	radiography,	and	to	focus	on	selling	our	DirectRay	detectors	to	OEM's	for	incorporation	in	their	own	line	of	digital	radiography systems.

Mini	C-arm	Imaging.	The	mini	C-arm	business	segment	reported	operating	income	of	$2.2	million	for	fiscal	2003	compared	to	operating	income	of	$3.5	million for	fiscal	2002.	This	decrease	was	primarily	attributable	to	higher	field	service	personnel	costs	and,	to	a	lesser	extent,	higher	operating	expenses	partially	offset	by improved	gross	profits	from	reduced	manufacturing	costs.

General	Radiography.	As	previously	discussed,	we	have	closed	the	manufacturing	facility	of	the	Hologic	Systems	Division	and	relocated	certain	of	its	product lines	and	sales	and	service	support	personnel	to	our	corporate	headquarters.	Our	revenue	in	this	business	segment	in	the	current	fiscal	year	is	primarily	from	our	ongoing service	business.	This	business	segment	reported	operating	income	of	$884,000	for	fiscal	2003	compared	to	an	operating	loss	of	$1.7	million	for	the	same	period	last year.	These	improvements	are	primarily	due	to	our	phasing-out	the	unprofitable	product	sales	and	related	operating	expenses	from	this	business	during	fiscal	2002.

# Liquidity	and	Capital	Resources

At	September	27,	2003	we	had	approximately	$103.9	million	of	working	capital.	At	that	date	our	cash	and	cash	equivalents	totaled	$45.2	million.	Our	cash	and cash	equivalents	balance	decreased	slightly	during	fiscal	2003	primarily	due	to	the	use	of	cash	for	purchases	of	property	and	equipment	substantially	offset	by	cash provided	by	operating	and	financing	activities.

Our	cash	provided	by	operating	activities	was	$4.7	million	which	included	net	income	of	$2.9	million	for	fiscal	2003	increased	by	non-cash	charges	for depreciation	and	amortization	of	an	aggregate	of	$7.4	million.	Cash	used	in	operations	due	to	changes	in	our	current	assets	and	liabilities	included	an	increase	in inventory	of	$5.1	million,	an	increase	in	accounts	receivable	of	$4.1	million	and	a	decrease	in	accrued	expenses	of	$1.7	million.	These	uses	of	cash	were	partially	offset by	a	decrease	in	prepaid	expenses	and	other	current	assets	of	$5.3	million.	The	increase	in	inventory	was	primarily	due	to	the	build	up	of	digital	mammography	systems. The	increase	in	accounts	receivable	was	primarily	due	to	the	increased	European	revenue	in	the	last	six	months	of	fiscal	2003	compared	to	the	same	period	of	fiscal	2002. The	European	sales	generally	have	longer	payment	terms	than	domestic	sales.	The	decrease	in	accrued	expenses	was	primarily	due	to	the	timing	of	payments.	The decrease	in	prepaid	expenses	was	primarily	due	to	the	receipt	of	income	tax	refunds.

In	fiscal	2003,	we	used	approximately	$7.9	million	of	cash	in	investing	activities.	This	use	of	cash	was	primarily	attributable	to	purchases	of	property	and equipment	of	$8.1	million,	which	consisted	primarily	of	corporate	wide	computer	information	software	and	hardware	systems	and	other	equipment	and	building improvements.

In	fiscal	2003,	financing	activities	provided	us	with	$2.3	million	of	cash.	These	cash	flows	included	approximately	$3.1	million	from	the	exercise	of	stock	options partially	offset	by	$718,000	of	repayments	of	our	term	loan	with	Wells	Fargo	Foothill,	Inc.

As	of	September	27,	2003	we	had	short	term	borrowings,	including	the	current	portion	of	our	long	term	obligations,	of	$480,000	and	long	term	notes	payable totaling	$1.6	million.	The	short	term	borrowings	represent	the	current	portion	of	our	long	term	notes	payable.	The	long	term	notes	payable	consisted	primarily	of	the $944,000	borrowed	from	Wells	Fargo	Foothill,	Inc.	as	the	long	term	portion	of	our	term	loan	under	our	credit	facility,	and	the	$604,000	balance	due	on	the	note	to	Fleet in	connection	with	the	settlement	of	the	Fleet	litigation.

We	maintain	an	unsecured	line	of	credit	with	a	European	bank	for	the	equivalent	of	$3.0	million,	which	bears	interest	at	the	Europe	Interbank	Offered	Rate (2.13%	at	September	27,	2003)	plus	1.5%.	The	borrowings	under	this	line	are	primarily	used	by	our	European	subsidiaries	to	settle	intercompany	sales	and	are denominated	in	the	respective	local	currencies	of	its	European	subsidiaries.	The	line	of	credit	may	be	canceled	by	the	bank	with	30	days	notice.	At	September	27,	2003, there	were	no	outstanding	borrowings	under	this	line.

In	September	2001	we	obtained	a	secured	loan	from	Wells	Fargo	Foothill,	Inc.	The	loan	agreement	with	Wells	Fargo	Foothill,	Inc.	provides	for	a	term	loan	of approximately	$2.4	million,	which	we	borrowed	at	signing,	and	a	revolving	line	of	credit	facility.	The	maximum	amount	we	can	borrow	under	the	loan	agreement	and amendments	is	$20.0	million.	The	loan	agreement	and	amendments	contain	financial	and	other	covenants	and	the	actual	amount	which	we	can	borrow	under	the	line	of credit	at	any	time	is	based	upon	a	formula	tied	to	the	amount	of	our	qualifying	accounts	receivable.	In	July	2003	we	amended	this	loan	agreement	primarily	to	simplify financial	covenants	and	to	reduce	the	fees	related	to	this	facility.	The	term	loan	accrues	interest	at	prime	plus	1.0%	for	five	years.	The	line	of	credit	advances	accrue interest	at	prime	plus	0.25%.	The	line	of	credit	expires	in	September	2005.	We	were	in	compliance	with	all	covenants	as	of	September	27,	2003.

In	April	2002,	we	began	an	implementation	project	for	an	integrated	enterprise	wide	software	application.	We	began	operational	use	of	this	software	application at	the	Bedford,	MA	and	Newark,	DE	facilities	on	November	24,	2002,	at	the	Danbury,	CT	facility	on	February	24,	2003	and	at	the	Brussels,	Belgium	location	on October	2,	2003.	Through	September	27,	2003	we	have	made	payments	totaling	$3.4	million	for	hardware,	software	and	consulting	services	representing	substantially all	of	our	capital	commitments	related	to	this	implementation	project.	Most	of	the	cost	has	been	capitalized	and	we	began	to	amortize	these	costs	over	their	expected useful	lives	in	December	2002.

In	September	2002,	we	completed	a	sale/leaseback	transaction	for	our	headquarters	and	manufacturing	facility	located	in	Bedford,	Massachusetts	and	our LORAD	manufacturing	facility	in	Danbury,	Connecticut.	The	transaction	resulted	in	net	proceeds	to	us	of	$31.4	million.	The	new	lease	for	these	facilities,	including	the associated	land,	has	a	term	of	20	years,	with	four	five-year	year	renewal	terms,	which	we	may	exercise	at	our	option.	The	basic	rent	for	the	facilities	is	$3.2	million	per year,	which	is	subject	to	adjustment	for	increases	in	the	consumer	price	index.	The	aggregate	total	minimum	lease	payments	during	the	initial	20-year	term	are	$62.9 million.	In	addition,	we	are	required	to	maintain	the	facilities	during	the	term	of	the	lease	and	to	pay	all	taxes,	insurance,	utilities	and	other	costs	associated	with	those facilities.	Under	the	lease,	we	make	customary	representations	and	warranties	and	agree	to	certain	financial	covenants	and	indemnities.	In	the	event	we	default	on	the lease,	the	landlord	may	terminate	the	lease,	accelerate	payments	and	collect	liquidated	damages.

The	following	table	summarizes	our	contractual	obligations	and	commitments	as	of	September	27,	2003:

| Contractual	Obligations | Total | 1	year | years | years | Thereafter |
| :--- | :--- | :--- | :--- | :--- | :--- |
| Long\tTerm\tDebt | $2,030 | $480 | $1,550 | $— | $— |
| Operating\tLeases | $62,934 | $4,371 | $8,160 | $6,482 | $43,921 |
| Total\tContractual\tCash\tObligations | $64,964 | $4,851 | $9,710 | $6,482 | $43,921 |

Except	as	set	forth	above,	we	do	not	have	any	other	significant	capital	commitments.	We	are	working	on	several	projects,	with	an	emphasis	on	direct	radiography plates.	We	believe	that	we	have	sufficient	funds	in	order	to	fund	our	expected	operations	over	the	next	twelve	months.

# Recent	Accounting	Pronouncements

In	December	2002,	SFAS	No.	148,	Accounting	for	Stock-Based	Compensation	–	Transition	and	Disclosure	was	issued.	SFAS	No.	148	amends	SFAS	No.	123	to provide	alternative	methods	of	transition	to	the	fair	value	method	of	accounting	for	stock-based	employee	compensation.	In	addition,	SFAS	No.	148	amends	the disclosure	provisions	of	SFAS	No.	123	to	require	disclosure	in	the	summary	of	significant	accounting	policies	of	the	effects	of	an	entity's	accounting	policy	with	respect to	stock-based	employee	compensation	on	reported	net	income	and	earnings	per	share	in	annual	and	interim	financial	statements.	SFAS	No.	148	does	not	amend	SFAS No.	123	to	require	companies	to	account	for	their	employee	stock-based	awards	using	the	fair	value	method.	However,	the	disclosure	provisions	are	required	for	all companies	with	stock-based	employee	compensation,	regardless	of	whether	they	utilize	the	fair	value	method	of	accounting	described	in	SFAS	No.	123	or	the	intrinsic value	method	described	in	APB	Opinion	No.	25.	SFAS	No.	148's	amendment	of	the	transition	and	annual	disclosure	provisions	of	SFAS	No.	123	are	effective	for	fiscal years	ending	after	December	15,	2002.	We	adopted	SFAS	No.	148	in	fiscal	2003.

In	January	2003,	the	FASB	issued	Interpretation	No.	(FIN)	46,	Consolidation	of	Variable	Interest	Entities,	to	expand	upon	and	strengthen	accounting	guidance that	addresses	when	a	company	should	include	in	its	financial	statements	the	assets,	liabilities,	and	activities	of	another	entity.	Until	now,	a	company	generally	has included	another	entity	in	its	consolidated	financial	statements	only	if	it	controlled	the	entity	through	voting	interests.	FIN	46	changes	that	guidance	by	requiring	a variable	interest	entity,	as	defined,	to	be	consolidated	by	a	company	if	that	company	bears	the	majority	of	the	risk	of	loss	from	the	variable	interest	entity's	activities,	is entitled	to	receive	a	majority	of	the	variable-interest	entity's	residual	returns	or	both.	FIN	46	also	requires	disclosure	about	the	variable	interest	entities	that	a	company	is not	required	to	consolidate	but	in	which	it	has	a	significant	variable	interest.	The	consolidation	requirements	of	FIN	46	apply	immediately	to	variable	interest	entities created	after	January	31,	2003	and	to	older	entities	in	the	first	fiscal	year	or	interim	period	beginning	after	June	15,	2003.	Certain	of	the	disclosure	requirements	apply	in all	financial	statements	issued	after	January	31,	2003,	regardless	of	when	the	variable	interest	entity	was	established.	We	do	not	believe	that	we	are	the	primary beneficiary	of	any	variable-interest	entities.	Accordingly,	we	believe	the	adoption	of	FIN	46	should	not	have	a	material	impact	on	our	overall	financial	position	or	results of	operations.

In	April	2003,	the	FASB	issued	SFAS	No.	149,	Amendment	of	Statement	133	on	Derivative	Instruments	and	Hedging	Activities.	SFAS	No.	149	amends	and clarifies	financial	accounting	and	reporting	for	derivative	instruments,	including	certain	derivative	instruments	embedded	in	other	contracts	(collectively	referred	to	as derivatives)	and	for	hedging	activities	under	SFAS	No.	133,	Accounting	for	Derivative	Instruments	and	Hedging	Activities.	SFAS	No.	149	is	effective	for	contracts entered	into	or	modified	after	June	30,	2003,	and	for	hedging	relationships	designated	after	June	30,	2003.	We	do	not	expect	the	adoption	of	this	statement	to	have	a material	impact	on	our	financial	position,	results	of	operations	and	cash	flows.

In	May	2003,	the	FASB	issued	SFAS	No.	150,	Accounting	for	Certain	Financial	Instruments	with	Characteristics	of	both	Liabilities	and	Equity.	This	statement establishes	standards	for	how	an	issuer	classifies	and	measures	in	its	statement	of	financial	position	certain	financial	instruments	with	characteristics	of	both	liabilities and	equity.	In	accordance	with	the	standard,	a	financial	instrument	that	embodies	an	obligation	for	the	issuer	is	required	to	be	classified	as	a	liability	(or	an	asset	in	some circumstances).	SFAS	No.	150	is	effective	for	financial	instruments	entered	into	or	modified	after	May	31,	2003,	and	otherwise	is

effective	at	the	beginning	of	the	first	interim	period	beginning	after	June	15,	2003.	The	adoption	of	SFAS	No.	150	did	not	have	a	material	impact	on	our	financial statements.

# Risk	Factors

This	report	contains	forward-looking	statements	that	involve	risks	and	uncertainties,	such	as	statements	of	our	objectives,	expectations	and	intentions.	The cautionary	statements	made	in	this	report	should	be	read	as	applicable	to	all	forward-looking	statements	wherever	they	appear	in	this	report.	Our	actual	results	could differ	materially	from	those	discussed	herein.	Factors	that	could	cause	or	contribute	to	such	differences	include	those	discussed	below,	as	well	as	those	discussed elsewhere	in	this	report.

# We	continue	to	incur	significant	losses	in	our	digital	imaging	business	segment	and	cannot	assure	that	the	segment	will	become	profitable.

Our	digital	imaging	business	segment	incurred	net	losses	of	$21.4	million	in	fiscal	2001,	$10.2	million	in	fiscal	2002	and	$14.7	million	in	fiscal	2003.	At	the beginning	of	fiscal	2004	we	started	to	move	away	from	selling	our	own	general	digital	X-ray	systems	in	competition	with	our	OEM	partners	in	general	digital radiography,	and	to	focus	on	selling	our	DirectRay	detectors	to	OEM's	for	incorporation	in	their	own	line	of	digital	radiography	systems.	Notwithstanding	this	shift	in focus,	we	cannot	assure	that	the	operating	results	of	our	digital	imaging	segment	will	improve.

# The	markets	for	our	direct	radiography	products	are	in	the	early	stage	of	development.

In	1998,	our	subsidiary,	Direct	Radiography	Corp.,	was	the	first	company	to	introduce	direct-to-digital	X-ray	imaging	products	in	the	United	States.	The	markets for	these	products	are	relatively	new.	There	is	a	significant	installed	base	of	conventional	X-ray	imaging	products	in	hospitals	and	radiological	practices.	The	use	of	our direct-to-digital	X-ray	imaging	products,	including	digital	mammography	products,	in	many	cases	would	require	these	potential	customers	to	either	modify	or	replace their	existing	X-ray	imaging	equipment.	Moreover,	we	believe	that	a	major	factor	in	the	market's	acceptance	of	direct-to-digital	X-ray	technology	is	the	trend	toward transition	by	the	healthcare	industry	from	conventional	film	archiving	systems	to	hospital	Picture,	Archive	and	Communication	Systems,	known	as	PACS,	to	store	X-ray images	electronically.	Because	the	benefits	of	our	direct-to-digital	technology	may	not	be	fully	realized	by	customers	until	they	install	a	PACS	platform,	a	large potential	market	for	these	products	may	not	develop	until	PACS	environments	are	more	widely	used.	Because	of	the	early	stage	of	the	markets	for	these	products,	it	is likely	that	our	evaluation	of	the	potential	markets	for	these	products	will	materially	vary	with	time.	We	cannot	assure	that	the	markets	for	our	direct	radiography products	will	continue	to	develop.

# If	we	fail	to	achieve	and	maintain	the	high	manufacturing	standards	that	our	direct	radiography	products	require,	we	will	not	be	successful	in	developing	and marketing	those	products.

The	manufacture	of	our	direct	radiography	detectors	is	highly	complex	and	requires	precise	high	quality	manufacturing	that	is	difficult	to	achieve.	We	have	in	the past	and	may	in	the	future	experience	difficulties	in	manufacturing	these	detectors	in	commercial	quantities,	primarily	related	to	delays	and	difficulties	in	obtaining critical	components	for	these	detectors	that	meet	our	high	manufacturing	standards.	Our	initial	difficulties	have	led	to	increased	delivery	lead-times	and	increased	costs of	manufacturing	these	products.	Our	failure,	including	the	failure	of	our	contract	manufacturers,	to	achieve	and	maintain	the	required	high	manufacturing	standards could	result	in	further	delays	or	failures	in	product	testing	or	delivery,	cost	overruns,	product	recalls	or	withdrawals,	or	other	problems	that	could	harm	our	business	and prospects.

# Our	success	depends	on	new	product	development.

We	have	a	continuing	research	and	development	program	designed	to	develop	new	products	and	to	enhance	and	improve	our	products.	We	are	expending significant	resources	on	the	development	of	digital	X-ray

imaging	products,	including	a	digital	mammography	product.	The	successful	development	of	our	products	and	product	enhancements	are	subject	to	numerous	risks,	both known	and	unknown,	including:

•unanticipated	delays;

•access	to	capital;

•budget	overruns;

•technical	problems;	and

•other	difficulties	that	could	result	in	the	abandonment	or	substantial	change	in	the	design,	development	and	commercialization	of	these	new	products,	including,	for example,	changes	requested	by	the	FDA	in	connection	with	pre-market	approval	applications	for	our	products	or	510(k)	notification.

Given	the	uncertainties	inherent	with	product	development	and	introduction,	we	cannot	assure	that	any	of	our	product	development	efforts	will	be	successful	on	a timely	basis	or	within	budget,	if	at	all.	Our	failure	to	develop	new	products	and	product	enhancements	on	a	timely	basis	or	within	budget	could	harm	our	business	and prospects.

# Our	business	could	be	harmed	if	our	products	contain	undetected	errors	or	defects	or	do	not	meet	customer	specifications.

We	are	continuously	developing	new	products	and	improving	our	existing	products.	Newly	introduced	products	can	contain	undetected	errors	or	defects.	In addition,	these	products	may	not	meet	their	performance	specifications	under	all	conditions	or	for	all	applications.	If,	despite	our	internal	testing	and	testing	by	our customers,	any	of	our	products	contains	errors	or	defects	or	any	of	our	products	fails	to	meet	customer	specifications,	then	we	may	be	required	to	enhance	or	improve those	products	or	technologies.	We	may	not	be	able	to	do	so	on	a	timely	basis,	if	at	all,	and	may	only	be	able	to	do	so	at	considerable	expense.	In	addition,	any significant	reliability	problems	could	result	in	adverse	customer	reaction,	negative	publicity	or	legal	claims	and	could	harm	our	business	and	prospects.

# Our	reliance	on	one	or	only	a	limited	number	of	suppliers	for	some	key	components	or	subassemblies	for	our	products	could	harm	our	business	and	prospects.

We	rely	on	one	or	only	a	limited	number	of	suppliers	for	some	key	components	or	subassemblies	for	our	products.	In	particular	we	have	only	one	source	of	supply for	each	of	the	panel	and	the	coating	of	that	panel	for	our	direct	radiography	products.	We	are	seeking	to	qualify	a	second	supplier	for	the	panel	coating	to	increase	our manufacturing	capacity	and	flexibility,	but	cannot	assure	that	we	will	be	successful.	In	addition,	we	have	only	limited	sources	of	supply	for	some	key	components	used in	our	mini	C-arm	systems.	Obtaining	alternative	sources	of	supply	of	these	components	could	involve	significant	delays	and	other	costs,	and	may	not	be	available	to	us on	reasonable	terms,	if	at	all.	The	failure	of	a	component	supplier	or	contract	assembler	to	provide	acceptable	quality	and	timely	components	or	assembly	service	at	an acceptable	price,	or	an	interruption	of	supplies	from	such	a	supplier	could	harm	our	business	and	prospects.	Any	disruption	of	supplies	of	key	components	could	delay or	reduce	shipments,	which	could	result	in	lost	or	deferred	sales.

We	have	recently	expanded	our	direct	sales	and	service	efforts	of	our	products	into	territories	that	were	previously	covered	by	independent	distributors,	are considering	further	expanding	our	direct	sales	and	service	coverage	in	the	United	States,	and	cannot	assure	that	we	can	effect	any	such	transition	effectively. Sales	of	our	products	may	fluctuate	if	our	sales	force	is	unable	to	successfully	market	and	sell	a	broader	product	offering.

We	have	sold	and	serviced	a	majority	of	our	mammography	systems	in	the	United	States	primarily	through	a	network	of	independent	distributors	and	to	a	lesser extent,	through	our	direct	sales	force.	During

fiscal	2003,	we	expanded	our	direct	sales	and	service	efforts	for	mammography	into	territories	that	were	previously	covered	by	independent	distributors,	and	are considering	further	expanding	our	direct	sales	and	service	coverage	in	the	United	States.	We	have	also	expanded	the	product	offerings	sold	by	our	direct	sales	force	to include	our	entire	product	line.	The	transition	to	a	direct	sales	and	service	force	with	a	more	diversified	product	offering	could	adversely	affect	our	relationships	with	our end-user	customers	and	sales	of	our	products,	if	we	are	unable	to	manage	the	transition	effectively	or	our	direct	sales	force	is	otherwise	unable	to	successfully	market and	sell	a	broader	product	offering.

# Our	reliance	on	a	customer	for	a	significant	portion	of	our	revenues	could	harm	our	business	and	prospects.

Our	largest	independent	distributor,	PSS	World	Medical,	owed	us	a	total	of	approximately	$3.2	million	as	of	September	27,	2003	and	accounted	for approximately	12%	of	our	product	sales	for	fiscal	2003.	We	do	not	have	a	long-term	agreement	with	PSS	World	Medical	obligating	them	to	purchase	products	from	us, or	restricting	them	from	purchasing	products	from	our	competitors.	A	reduction	or	delay	in	orders	from	PSS	World	Medical,	or	a	delay	or	default	in	the	payment	of	their accounts	receivable,	including	in	connection	with	the	expansion	of	our	direct	sales	and	service	force,	could	harm	our	business	and	prospects.

If	we	are	unable	to	satisfy	our	financial	covenants	under	our	loan	agreement	and	our	long-term	leases	for	our	headquarters	and	Lorad	facilities,	our	loan availability	may	be	limited	or	the	rent	due	under	those	leases	may	be	accelerated	and	we	could	be	required	to	pay	liquidated	damages.

Our	loan	agreement	with	Wells	Fargo	Foothill,	Inc.	(formerly	Foothill	Capital	Corporation)	and	our	long-term	leases	contain	financial	and	other	covenants.	If	we do	not	comply	with	our	covenants	under	our	loan	agreement,	our	availability	under	our	loan	agreement	could	be	reduced	or	our	lender	could	declare	a	default.	If	we	do not	comply	with	our	covenants	under	our	long-term	leases,	the	remaining	rent	payable	under	those	leases	could	be	accelerated	and	we	could	be	required	to	pay liquidated	damages.	Our	failure	to	meet	any	of	our	covenants	under	our	loan	agreement	or	long-term	leases	could	significantly	harm	our	liquidity	and	financial	position.

# We	may	not	be	able	to	compete	successfully.

A	number	of	companies	have	developed,	or	are	expected	to	develop,	products	that	compete	or	will	compete	with	our	products.	Many	of	these	competitors	offer	a range	of	products	in	areas	other	than	those	in	which	we	compete,	which	may	make	such	competitors	more	attractive	to	hospitals,	radiology	clients,	general	purchasing organizations	and	other	potential	customers.	In	addition,	many	of	our	competitors	and	potential	competitors	are	larger	and	have	greater	financial	resources	than	we	do and	offer	a	range	of	products	broader	than	our	products.	Some	of	the	companies	with	which	we	now	compete	or	may	compete	in	the	future	have	or	may	have	more extensive	research,	marketing	and	manufacturing	capabilities	and	significantly	greater	technical	and	personnel	resources	than	we	do,	and	may	be	better	positioned	to continue	to	improve	their	technology	in	order	to	compete	in	an	evolving	industry.	Our	failure	to	compete	successfully	could	harm	our	business	and	prospects.

The	primary	competitor	for	our	osteoporosis	assessment	products	is	General	Electric	Medical	Systems	(GE).	Our	direct-to-digital	imaging	products	compete	with traditional	X-ray	systems	as	well	as	indirect	conversion	systems,	such	as	computed	radiography	systems,	which	are	less	expensive	than	our	products,	and	other	direct-to- digital	systems.	The	larger	competitors	in	these	markets	include	GE,	Siemens,	Kodak,	Canon,	Philips,	SwissRay,	Fischer	Imaging	and	Varian.	At	the	beginning	of	fiscal 2004,	we	started	to	move	away	from	selling	our	own	general	digital	X-ray	systems	in	competition	with	our	OEM	partners	in	general	digital	radiography	and	focus	more on	expanding	our	OEM	sales	for	our	DirectRay	panel.

Our	mammography	systems	compete	with	products	offered	by	GE,	Siemens,	PlanMed,	Instrumentarium,	Fischer	Imaging	and	Agfa.	Our	minimally	invasive breast	biopsy	systems	compete	with	products	offered	by	Fischer	Imaging	and	with	conventional	surgical	biopsy	procedures.	Our	mini	C-arm	products	compete

directly	with	mini	C-arms	manufactured	and	sold	by	a	limited	number	of	companies	including	GE.	We	also	compete	indirectly	with	manufacturers	of	conventional	C- arm	image	intensifiers	including	Philips,	Siemens	and	GE.

# Our	success	depends	upon	our	ability	to	adapt	to	rapid	changes	in	technology	and	customer	requirements.

The	market	for	our	products	has	been	characterized	by	rapid	technological	change,	frequent	product	introductions	and	evolving	customer	requirements.	We believe	that	these	trends	will	continue	into	the	foreseeable	future.	Our	success	will	depend,	in	part,	upon	our	ability	to	enhance	our	existing	products,	successfully develop	new	products	that	meet	increasing	customer	requirements	and	gain	market	acceptance.	If	we	fail	to	do	so	our	products	may	be	rendered	obsolete	or uncompetitive	by	new	industry	standards	or	changing	technology.

# Our	failure	to	manage	current	or	future	alliances	or	joint	ventures	effectively	may	harm	our	business	and	prospects.

We	have	entered	into	strategic	alliances	with	Agfa,	Siemens	and	R2	Technologies.	We	are	also	exploring	other	potential	alliances,	joint	ventures	or	other	business relationships.	Agfa	and	Siemens	compete	with	us	in	some	of	our	business	segments,	and	are	competitors	or	potential	competitors	to	some	of	our	customers	or	potential customers.	Our	alliance	with	Agfa,	Siemens	or	any	other	person	could	enhance	their	business	to	our	detriment	or	make	it	more	difficult	for	us	to	enter	into	advantageous business	transactions	or	relationships	with	others.	Moreover,	we	may	not	be	able	to:

•identify	appropriate	candidates	for	alliances	or	joint	ventures;

•assure	that	any	alliance	or	joint	venture	candidate	will	provide	us	with	the	support	anticipated;

•successfully	negotiate	an	alliance	or	joint	venture	on	terms	that	are	advantageous	to	us;	or

•successfully	manage	any	alliance	or	joint	venture.

Furthermore,	any	alliance	or	joint	venture	may	divert	management	time	and	resources.	Our	entering	into	a	disadvantageous	alliance	or	joint	venture	or	failure	to	manage an	alliance	or	joint	venture	effectively	could	harm	our	business	and	prospects.

# The	uncertainty	of	healthcare	reform	could	harm	our	business	and	prospects.

In	recent	years,	the	healthcare	industry	has	undergone	significant	change	driven	by	various	efforts	to	reduce	costs,	including	efforts	at	national	healthcare	reform, trends	toward	managed	care,	cuts	in	Medicare,	consolidation	of	healthcare	distribution	companies	and	collective	purchasing	arrangements	by	office-based	healthcare practitioners.	Healthcare	reform	proposals	and	medical	cost	containment	measures	in	the	United	States	and	in	many	foreign	countries	could:

•limit	the	use	of	our	products;

•reduce	reimbursement	available	for	such	use;	or

•adversely	affect	the	use	of	new	therapies	for	which	our	products	may	be	targeted.

These	reforms	or	cost	containment	measures,	including	the	uncertainty	in	the	medical	community	regarding	their	nature	and	effect,	could	harm	our	business	and prospects	and	make	it	difficult	for	us	to	raise	additional	capital	on	advantageous	terms,	if	at	all.

# We	depend	on	third	party	reimbursement	to	our	customers	for	market	acceptance	of	our	products.	Failure	of	third	party	payors	to	provide	appropriate	levels of	reimbursement	for	use	of	our	products	could	harm	our	business	and	prospects.

Sales	of	medical	products	largely	depend	on	the	reimbursement	of	patients'	medical	expenses	by	government	healthcare	programs	and	private	health	insurers.	The costs	of	our	products	are	substantial,	and	market	acceptance	of	our	products	depends	upon	our	customers'	ability	to	obtain	appropriate	levels	of	reimbursement	from third-party	payors	for	use	of	our	products.	In	the	United	States,	the	Centers	for	Medicare	&	Medicaid	Services,	known	as	CMS,	establishes	guidelines	for	the reimbursement	of	healthcare	providers	treating	Medicare	and	Medicaid	patients.	Under	current	CMS	guidelines,	varying	reimbursement	levels	have	been	established	for bone	density	assessment,	mammography	and	other	imaging	and	diagnostic	procedures	performed	by	our	products.	The	actual	reimbursement	amounts	are	determined	by individual	state	Medicare	carriers	and,	for	non-Medicare	and	Medicaid	patients,	private	insurance	carriers.	There	are	often	delays	between	the	reimbursement	approvals by	CMS	and	by	a	state	Medicare	carrier	and	private	insurance	carriers.	Moreover,	states	as	well	as	private	insurance	carriers	may	choose	not	to	follow	the	CMS reimbursement	guidelines.	The	use	of	our	products	outside	the	United	States	is	similarly	affected	by	reimbursement	policies	adopted	by	foreign	regulatory	and	insurance carriers.	A	reduction	or	other	adverse	change	in	reimbursement	policies	for	the	use	of	our	products	could	harm	our	business	and	prospects.

# The	future	growth	of	our	bone	densitometry	business	depends	in	large	part	on	the	continued	development	and	more	widespread	acceptance	of	complementary therapies	as	well	as	our	ability	to	expand	into	the	primary	care	market.

Our	bone	densitometers	and	related	products	are	used	to	assist	physicians	in	diagnosing	patients	at	risk	for	osteoporosis	and	other	bone	disorders,	and	to	monitor the	effectiveness	of	therapies	to	treat	these	disorders.	As	a	result,	the	future	growth	of	the	market	for	these	products	and	of	this	business	will	in	large	part	be	dependent upon	the	development	and	more	widespread	acceptance	of	drug	therapies	to	prevent	and	to	treat	osteoporosis,	and	in	addition,	our	ability	to	expand	into	the	primary	care market.	Over	the	last	several	years,	the	FDA	has	approved	a	number	of	drug	therapies	to	treat	osteoporosis.	We	also	understand	that	a	number	of	other	drug	therapies	are under	development.	While	sales	of	our	bone	densitometry	products	have	benefited	from	the	increased	availability	and	use	of	these	therapies,	most	patients	who	are	at risk	for	osteoporosis	continue	to	go	untreated.	We	cannot	assure	that	any	therapies	under	development	or	in	clinical	trials	will	prove	to	be	effective,	obtain	regulatory approval,	or	that	any	approved	therapy	will	gain	wide	acceptance.	Even	if	these	therapies	gain	widespread	acceptance,	we	cannot	assure	that	this	acceptance	will increase	the	sales	of	our	products.

# Reductions	in	revenues	could	harm	our	operating	results	because	a	high	percentage	of	our	operating	expenses	is	relatively	fixed.

A	high	percentage	of	our	operating	expenses	is	relatively	fixed.	We	likely	will	not	be	able	to	reduce	spending	to	compensate	for	adverse	fluctuations	in	revenues.

As	a	result,	shortfalls	in	revenues	are	likely	to	harm	our	operating	results.

# Our	results	of	operations	are	subject	to	significant	quarterly	variation	and	seasonal	fluctuation.

Our	results	of	operations	have	been	and	may	continue	to	be	subject	to	significant	quarterly	variation.	The	results	for	a	particular	quarter	may	vary	due	to	a	number of	factors,	including:

•the	overall	state	of	healthcare	and	cost	containment	efforts;

•the	development	status	and	demand	for	drug	therapies	to	treat	osteoporosis;

•the	development	status	and	demand	for	our	direct-to-digital	imaging	products;

•economic	conditions	in	our	markets;

•foreign	exchange	rates;

•the	timing	of	orders;

•the	timing	of	expenditures	in	anticipation	of	future	sales;

•the	mix	of	products	sold	by	us;

•the	introduction	of	new	products	and	product	enhancements	by	us	or	our	competitors;	and

•pricing	and	other	competitive	conditions.

Customers	may	also	cancel	or	reschedule	shipments.	Production	difficulties	could	also	delay	shipments.	Any	of	these	factors	also	could	harm	our	business	and prospects.

# Our	delay	or	inability	to	obtain	any	necessary	United	States	or	foreign	regulatory	clearances	or	approvals	for	our	products	could	harm	our	business	and prospects.

Our	products	are	medical	devices	that	are	the	subject	of	a	high	level	of	regulatory	oversight.	Our	delay	or	inability	to	obtain	any	necessary	United	States	or foreign	regulatory	clearances	or	approvals	for	our	products	could	harm	our	business	and	prospects.	The	process	of	obtaining	clearances	and	approvals	can	be	costly	and time-consuming.	There	is	a	risk	that	any	approvals	or	clearances,	once	obtained,	may	be	withdrawn	or	modified.	Medical	devices	cannot	be	marketed	in	the	United States	without	clearance	or	approval	by	the	FDA.	Medical	devices	sold	in	the	United	States	must	also	be	manufactured	in	compliance	with	FDA	Good	Manufacturing Practices,	which	regulate	the	design,	manufacture,	packing,	storage	and	installation	of	medical	devices.	Moreover,	medical	devices	are	required	to	comply	with	FDA regulations	relating	to	investigational	research	and	labeling.	States	may	also	regulate	the	manufacture,	sale	and	use	of	medical	devices,	particularly	those	that	employ	X- ray	technology.	Our	products	are	also	subject	to	approval	and	regulation	by	foreign	regulatory	and	safety	agencies.

# Fluctuations	in	the	exchange	rates	of	European	currencies	and	the	other	foreign	currencies	in	which	we	conduct	our	business,	in	relation	to	the	U.S.	dollar, have	harmed	and	could	continue	to	harm	our	business	and	prospects.

Foreign	sales	accounted	for	approximately	32%	of	our	product	sales	in	fiscal	2003,	20%	of	product	sales	in	fiscal	2002	and	28%	of	our	product	sales	in	fiscal 2001.	We	maintain	a	sales	and	service	office	in	Belgium	and	a	support	office	in	France.	The	expenses	and	sales	of	these	offices	are	denominated	in	local	currencies.	We anticipate	that	foreign	sales	and	sales	denominated	in	foreign	currencies	will	continue	to	account	for	a	significant	portion	of	our	total	sales.	Fluctuations	in	the	value	of local	currencies	have	caused,	and	are	likely	to	continue	to	cause,	amounts	translated	into	U.S.	dollars	to	fluctuate	in	comparison	with	previous	periods.	We	have	hedged our	foreign	currency	exposure	by	borrowing	funds	in	local	European	currencies	to	pay	the	expenses	of	our	foreign	offices.	There	is	a	risk	that	these	hedging	activities will	not	be	successful	in	mitigating	our	foreign	exchange	risk	exposure.

# We	conduct	our	business	worldwide,	which	exposes	us	to	a	number	of	difficulties	in	coordinating	our	international	activities	and	dealing	with	multiple regulatory	environments.

We	sell	our	products	to	customers	throughout	the	world.	Our	worldwide	business	may	be	harmed	by:

•difficulties	in	staffing	and	managing	operations	in	multiple	locations;

•greater	difficulties	in	trade	accounts	receivable	collection;

•possible	adverse	tax	consequences;

•governmental	currency	controls;

•changes	in	various	regulatory	requirements;

•political	and	economic	changes	and	disruptions;

•export/import	controls;	and

•tariff	regulations.

# Our	business	could	be	harmed	if	we	are	unable	to	protect	our	proprietary	technology.

We	rely	primarily	on	a	combination	of	trade	secrets,	patents,	copyright	and	trademark	laws	and	confidentiality	procedures	to	protect	our	technology.	Despite	these precautions,	unauthorized	third	parties	may	infringe,	copy	or	reverse	engineer	portions	of	our	technology.	We	do	not	know	if	current	or	future	patent	applications	will	be issued	with	the	scope	of	the	claims	sought,	if	at	all,	or	whether	any	patents	issued	will	be	challenged	or	invalidated.	In	addition,	we	have	obtained	or	applied	for corresponding	patents	and	patent	applications	in	several	foreign	countries	for	some	of	our	patents	and	patent	applications.	There	is	a	risk	that	these	patent	applications will	not	be	granted	or	that	the	patent	or	patent	application	will	not	provide	significant	protection	for	our	products	and	technology.	Our	competitors	may	independently develop	similar	technology	that	our	patents	do	not	cover.	In	addition,	because	patent	applications	in	the	United	States	are	not	publicly	disclosed	until	the	patent	is	issued, applications	may	have	been	filed	which	relate	to	our	technology.	Moreover,	there	is	a	risk	that	foreign	intellectual	property	laws	will	not	protect	our	intellectual	property rights	to	the	same	extent	as	United	States	intellectual	property	laws.	In	the	absence	of	significant	patent	protection,	we	may	be	vulnerable	to	competitors	who	attempt	to copy	our	products,	processes	or	technology.

# Our	business	could	be	harmed	if	we	infringe	upon	the	intellectual	property	rights	of	others.

There	has	been	substantial	litigation	regarding	patent	and	other	intellectual	property	rights	in	the	medical	device	and	related	industries.	We	have	been,	and	may	be in	the	future,	notified	that	we	may	be	infringing	intellectual	property	rights	possessed	by	third	parties.	If	any	such	claims	are	asserted	against	our	intellectual	property rights,	we	may	seek	to	enter	into	royalty	or	licensing	arrangements.	There	is	a	risk	in	these	situations	that	no	license	will	be	available	or	that	a	license	will	not	be available	on	reasonable	terms.	Alternatively,	we	may	decide	to	litigate	such	claims	or	to	design	around	the	patented	technology.	These	actions	could	be	costly	and	would divert	the	efforts	and	attention	of	our	management	and	technical	personnel.	As	a	result,	any	infringement	claims	by	third	parties	or	claims	for	indemnification	by customers	resulting	from	infringement	claims,	whether	or	not	proven	to	be	true,	may	harm	our	business	and	prospects.

# Our	future	success	will	depend	on	the	continued	services	of	our	key	personnel.

The	loss	of	any	of	our	key	personnel,	particularly	our	key	research	and	development	personnel,	could	harm	our	business	and	prospects.	Our	success	will	also depend	upon	our	ability	to	attract	and	retain	other	qualified	managerial	and	technical	personnel.	Competition	for	such	personnel,	particularly	software	engineers	and other	technical	personnel,	is	intense.	We	may	not	be	able	to	attract	and	retain	personnel	necessary	for	the	development	of	our	business.	We	do	not	have	any	key	man	life insurance	for	any	of	our	officers	or	other	key	personnel.

# There	is	a	risk	that	our	insurance	will	not	be	sufficient	to	protect	us	from	product	liability	or	other	claims,	or	that	in	the	future	liability	insurance	will	not	be available	to	us	at	a	reasonable	cost,	if	at	all.

Our	business	involves	the	risk	of	product	liability	and	other	claims	inherent	to	the	medical	device	business.	We	maintain	product	liability	insurance	subject	to deductibles	and	exclusions.	There	is	a	risk	that	our	insurance	will	not	be	sufficient	to	protect	us	from	product	and	other	liability	claims,	or	that	product	liability	insurance will	not	be	available	to	us	at	a	reasonable	cost,	if	at	all.	An	under-insured	or	uninsured	claim	could	harm	our	operating	results	or	financial	condition.

# We	use	hazardous	materials	and	products.

Our	research	and	development	involves	the	controlled	use	of	hazardous	materials,	such	as	toxic	and	carcinogenic	chemicals	and	various	radioactive	compounds. Although	we	believe	that	our	safety	procedures	for	handling	and	disposing	of	such	materials	comply	with	the	standards	prescribed	by	federal,	state	and	local	regulations, we	cannot	completely	eliminate	the	risk	of	accidental	contamination	or	injury	from	these	materials.	In	the	event	of	this	type	of	accident,	we	could	be	held	liable	for	any resulting	damages,	and	any	such	liability	could	be	extensive.	We	are	also	subject	to	substantial	regulation	relating	to	occupational	health	and	safety,	environmental protection,	hazardous	substance	control,	and	waste	management	and	disposal.	The	failure	to	comply	with	such	regulations	could	subject	us	to,	among	other	things,	fines and	criminal	liability.

# Provisions	in	our	Certificate	of	Incorporation	and	By-laws	and	our	stockholder	rights	plan	may	have	the	effect	of	discouraging	advantageous	offers	for	our business	or	common	stock	and	limit	the	price	that	investors	might	be	willing	to	pay	in	the	future	for	shares	of	our	common	stock.

Our	Certificate	of	Incorporation,	By-laws	and	the	provisions	of	Delaware	corporate	law	include	provisions	that	may	have	the	effect	of	discouraging	or	preventing a	change	in	control.	In	addition,	we	have	a	stockholder	rights	plan	that	may	have	the	effect	of	discouraging	or	preventing	a	change	in	control.	These	provisions	could limit	the	price	that	our	stockholders	might	receive	in	the	future	for	shares	of	our	common	stock.

# Our	stock	price	is	volatile.

The	market	price	of	our	common	stock	has	been,	and	may	continue	to	be,	highly	volatile.	We	believe	that	a	variety	of	factors	could	cause	the	price	of	our common	stock	to	fluctuate,	perhaps	substantially,	including:

•announcements	and	rumors	of	developments	related	to	our	business,	or	the	industry	in	which	we	compete;

•quarterly	fluctuations	in	our	actual	or	anticipated	operating	results	and	order	levels;

•general	conditions	in	the	worldwide	economy;

•announcements	of	technological	innovations;

•new	products	or	product	enhancements	by	us	or	our	competitors;

•developments	in	patents	or	other	intellectual	property	rights	and	litigation;	and

•developments	in	our	relationships	with	our	customers	and	suppliers.

In	addition,	in	recent	years	the	stock	market	in	general	and	the	markets	for	shares	of	small	capitalization	and	"high-tech"	companies	in	particular,	have experienced	extreme	price	fluctuations	which	have	often	been	unrelated	to	the	operating	performance	of	affected	companies.	Any	such	fluctuations	in	the

future	could	adversely	affect	the	market	price	of	our	common	stock,	and	the	market	price	of	our	common	stock	may	decline.

# Item	7A. 	 Quantitative	and	Qualitative	Disclosures	About	Market	Risk.

Financial	Instruments,	Other	Financial	Instruments,	and	Derivative	Commodity	Instruments.	SFAS	No.	107,	Disclosure	of	Fair	Value	of	Financial	Instruments, requires	disclosure	about	fair	value	of	financial	instruments.	Financial	instruments	consist	of	cash	equivalents,	short	and	long-term	investments,	accounts	receivable, accounts	payable	and	debt	obligations.	The	fair	value	of	these	financial	instruments	approximates	their	carrying	amount.

Primary	Market	Risk	Exposures.	Our	primary	market	risk	exposures	are	in	the	areas	of	interest	rate	risk	and	foreign	currency	exchange	rate	risk.	We	incur	interest expense	on	loans	made	under	a	loan	and	security	agreement	with	Wells	Fargo	Foothill,	Inc.	(the	Foothill	Agreement)	and	a	European	line	of	credit.	The	Foothill Agreement	term	loan	accrues	interest	at	the	prime	rate	plus	1.0%	and	the	European	Line	of	Credit	accrues	interest	at	the	Europe	Interbank	Offered	Rate	plus	1.50%.	At September	27,	2003,	we	had	$0.9	million	outstanding	under	the	Foothill	Agreement	and	there	were	no	amounts	outstanding	under	the	line	of	credit.

Substantially	all	of	our	sales	outside	the	United	States	are	conducted	in	U.S.	dollar	denominated	transactions.	We	operate	two	European	subsidiaries	which	incur expenses	denominated	in	local	currencies.	However,	we	believe	that	these	operating	expenses	will	not	harm	our	business,	results	of	operations	or	financial	condition.

# Item	8. Financial	Statements	and	Supplementary	Data.

The	consolidated	Financial	Statements	and	Supplementary	Data	of	Hologic	are	listed	under	Part	IV,	Item	15,	in	this	report.

Arthur	Andersen	LLP	served	as	the	independent	auditors	for	us	until	June	23,	2002.	After	reasonable	efforts,	we	were	unable	to	obtain	from	Arthur	Andersen	LLP the	consent	required	for	the	incorporation	by	reference	of	their	report	on	our	consolidated	balance	sheets	as	of	September	29,	2001,	and	the	related	consolidated statements	of	operations,	stockholders'	equity	and	cash	flows	for	the	year	ended	September	29,	2001,	into	registration	statements	we	filed	with	the	Securities	and Exchange	Commission	that	are	currently	effective	under	the	Securities	Act	of	1933.	Accordingly,	pursuant	to	and	in	reliance	upon	Rule	437a	of	the	Securities	Act	of 1933,	we	are	permitted	to	dispense	with	the	requirement	to	file	their	consent.	Because	Arthur	Andersen	LLP	have	not	consented	to	the	incorporation	by	reference	of	their report,	investors	may	not	be	able	to	recover	damages	against	Arthur	Andersen	LLP	under	Section	11	of	the	Securities	Act	of	1933	for	any	untrue	statements	of	a	material fact	contained	in	the	financial	statements	audited	by	Arthur	Andersen	LLP	that	are	included	in	this	report	or	any	omissions	to	state	a	material	fact	required	to	be	stated therein.

# Item	9. 	 Changes	in	and	Disagreements	with	Accountants	on	Accounting	and	Financial	Disclosure.

A	change	in	independent	accountants	from	Arthur	Andersen	LLP	to	Ernst	&	Young	LLP	was	reported	in	our	current	report	on	Form	8-K	dated	June	24,	2002.

# Item	9A. 	 Controls	and	Procedures.

We	maintain	disclosure	controls	and	procedures	that	are	designed	to	ensure	that	information	required	to	be	disclosed	in	our	Securities	Exchange	Act	reports	is recorded,	processed,	summarized	and	reported	within	the	time	periods	specified	in	the	SEC's	rules	and	forms,	and	that	such	information	is	accumulated	and communicated	to	our	management,	including	our	Chief	Executive	Officer	and	Chief	Financial	Officer,	as	appropriate,	to	allow	timely	decisions	regarding	required disclosure.	In	designing	and	evaluating	the	disclosure	controls	and	procedures,	management	recognized	that	any	controls	and	procedures,	no	matter	how

well	designed	and	operated,	can	provide	only	reasonable	assurance	of	achieving	the	desired	control	objectives,	as	ours	are	designed	to	do,	and	management	necessarily was	required	to	apply	its	judgment	in	evaluating	the	cost-benefit	relationship	of	possible	controls	and	procedures.

As	of	September	27,	2003,	we	carried	out	an	evaluation,	under	the	supervision	and	with	the	participation	of	our	management,	including	our	Chief	Executive Officer	and	Chief	Financial	Officer,	of	the	effectiveness	of	the	design	and	operation	of	our	disclosure	controls	and	procedures,	as	defined	in	Rules	13a-15(e)	and	15d- 15(e)	under	the	Securities	Exchange	Act	of	1934.	Based	upon	that	evaluation,	our	Chief	Executive	Officer	and	Chief	Financial	Officer	concluded	that	our	disclosure controls	and	procedures	are	effective	in	enabling	us	to	record,	process,	summarize	and	report	information	required	to	be	included	in	our	periodic	SEC	filings	within	the required	time	period.

There	have	been	no	changes	in	our	internal	control	over	financial	reporting	that	occurred	during	the	period	covered	by	this	report	that	have	materially	affected,	or are	reasonably	likely	to	materially	affect,	our	internal	control	over	financial	reporting.

# PART	III

# Item	10. 	 Directors	and	Executive	Officers	of	the	Registrant.

The	information	required	by	this	item	is	incorporated	by	reference	to	the	sections	entitled	"Election	of	Directors"	and	"Executive	Officers"	in	our	Definitive Proxy	Statement	for	our	annual	meeting	of	stockholders	to	be	filed	with	the	Securities	and	Exchange	Commission	within	120	days	after	the	close	of	our	fiscal	year.

# Item	11. 	 Executive	Compensation.

The	information	required	by	this	item	is	incorporated	by	reference	to	the	sections	entitled	"Executive	Compensation"	in	our	Definitive	Proxy	Statement	for	our annual	meeting	of	stockholders	to	be	filed	with	the	Securities	and	Exchange	Commission	within	120	days	after	the	close	of	our	fiscal	year.

# Item	12. Security	Ownership	of	Certain	Beneficial	Owners	and	Management	and	Related	Stockholder	Matters.

We	maintain	a	number	of	equity	compensation	plans	for	employees,	officers,	directors	and	others	whose	efforts	contribute	to	our	success.	The	table	below	sets forth	certain	information	as	our	fiscal	year	ended	September	27,	2003	regarding	the	shares	of	our	common	stock	available	for	grant	or	granted	under	stock	option	plans that	(i)	were	approved	by	our	stockholders,	and	(ii)	were	not	approved	by	our	stockholders.

# Equity	Compensation	Plan	Information

(1) Includes	the	following	plans:	1986	Combination	Stock	Option	Plan;	Amended	and	Restated	1990	Non-employee	Director	Stock	Option	Plan;	1995	Combination Stock	Option	Plan;	Amended	and	Restated	1999	Equity	Incentive	Plan;	and	2000	Employee	Stock	Purchase	Plan.	Also	includes	the	following	plans	which	we assumed	in	connection	with	our	acquisition	of	Fluoroscan	Imaging	Systems	in	1996:	FluoroScan	Imaging	Systems,	Inc.	1994	Amended	and	Restated	Stock Incentive	Plan	and	FluoroScan	Imaging	Systems,	Inc.	1995	Stock	Incentive	Plan.	For	a	description	of	these	plans,	please	refer	to	Footnote	6	contained	in	our consolidated	financial	statements.

(2) Includes	the	following	plans:	1997	Employee	Equity	Incentive	Plan	and	2000	Acquisition	Equity	Incentive	Plan.	A	description	of	each	of	these	plans	is	as follows:

1997	Employee	Equity	Incentive	Plan.	The	purposes	of	the	1997	Employee	Equity	Incentive	Plan	(the	"1997	Plan"),	adopted	by	the	Board	of	Directors	in	May 1997,	are	to	attract	and	retain	key	employees,	consultants	and	advisors,	to	provide	an	incentive	for	them	to	assist	us	in	achieving	long-range	performance	goals,	and	to enable	such	person	to	participate	in	our	long-term	growth.	In	general,	under	the	1997	Plan,	all	employees,	consultants,	and	advisors	who	are	not	executive	officers	or directors	are	eligible	to	participate	in	the	1997	Plan.	The	1997	Plan	is	administered	by	a	committee	consisting	of	at	least	three	members	of	the	Board	appointed	by	the Board	of	Directors.	Participants	in	the	1997	Plan	are	eligible	to	receive	non-qualified	stock	options,	stock	appreciation	rights,	restricted	stock	and	performance	shares.	A total	of	1,100,000	shares	of	our	common	stock	were	reserved	for	issuance	under	the	1997	Plan.	Of	the	shares	reserved	for	issuance	under	the	1997	Plan,	options	to purchase	753,971	shares	have	been	granted	and	are	outstanding	and	72,061	shares	remain	available	for	grant.

2000	Acquisition	Incentive	Plan.	The	purpose	of	the	2000	Acquisition	Equity	Incentive	Plan	(the	"2000	Plan"),	adopted	by	the	Board	of	Directors	in	April	2001, is	to	attract	and	retain	(a)	employees,	consultants	and	advisors,	of	newly	acquired	businesses	who	have	been	or	are	being	hired	as	employees,	consultants	or	advisors	of our	company	or	any	of	our	consolidated	subsidiaries,	and	(b)	employees,	consultants	and	advisors,	of	our	company	who	have	or	are	anticipated	to	provide	significant assistance	in	connection	with	the	acquisition	of	a	newly	acquired	business	or	its	integration	with	our	company,	and	to	provide	such	persons	an	incentive	for	them	to achieve	long-range	performance	goals,	and	to	enable	them	to	participate	in	our	long-term	growth.	In	general,	under	the	2000	Plan,	only	employees,	consultants	and advisors	who	are	not	officers	or	directors	of	our	company	are	eligible	to	participate	in	the	2000	Plan.	The	2000	Plan	is	administered	by	the	Board	or,	at	its	option,	a committee	consisting	of	at	least	three	members	of	the	Board	appointed	by	the	Board	of	Directors.	Participants	in	the	2000	Plan	are	eligible	to	receive	non-qualified	stock options,	stock	appreciation	rights,	restricted	stock	and	performance	shares.	A	total	of	1,000,000	shares	of	our	common	stock	were	reserved	for	issuance	under	the	2000 Plan.	Of	the	shares	reserved	for	issuance	under	the	2000	Plan,	options	to	purchase	362,644	shares	have	been	granted	and	are	outstanding	and	463,196	shares	remain available	for	grant.

The	additional	information	required	by	this	item	is	incorporated	by	reference	to	the	section	entitled	"Share	Ownership	of	Directors,	Officers	and	Certain Beneficial	Owners"	in	our	Definitive	Proxy	Statement	for	our	annual	meeting	of	stockholders	to	be	filed	with	the	Securities	and	Exchange	Commission	within	120	days after	the	close	of	our	fiscal	year.

# Item	13. 	 Certain	Relationships	and	Related	Transactions.

The	information	required	by	this	item	is	incorporated	by	reference	to	the	sections	entitled	"Certain	Related	Transactions"	in	our	Definitive	Proxy	Statement	for our	annual	meeting	of	stockholders	to	be	filed	with	the	Securities	and	Exchange	Commission	within	120	days	after	the	close	of	our	fiscal	year.

# PART	IV

# Item	15. 	 Exhibits,	Financial	Statement	Schedules,	and	Reports	on	Form	8-K.

(a)	The	following	documents	are	filed	as	part	of	this	report:

# (1) Financial	Statements

# Reports	of	Independent	Public	Accountants

Consolidated	Balance	Sheets	as	of	September	27,	2003	and	September	28,	2002

Consolidated	Statements	of	Operations	for	the	years	ended	September	27,	2003,	September	28,	2002	and	September	29,	2001

Consolidated	Statements	of	Stockholders'	Equity	for	the	years	ended	September	27,	2003,	September	28,	2002	and	September	29,	2001

Consolidated	Statements	of	Cash	Flows	for	the	years	ended	September	27,	2003,	September	28,	2002	and	September	29,	2001

# Notes	to	Consolidated	Financial	Statements

# (2) Financial	Statement	Schedules

All	schedules	have	been	omitted	because	they	are	not	required	or	because	the	required	information	is	given	in	the	Consolidated	Financial	Statements	or Notes	thereto.

* Management	compensation	plan	or	arrangement

A We	previously	filed	this	exhibit	on	January	24,	1990	with	the	referenced	exhibit	number	as	an	exhibit	to	our	Registration	Statement	on	Form	S-1	(Registration	No. 33-33128),	and	the	previously	filed	exhibit	is	incorporated	herein	by	reference.

B We	previously	filed	this	exhibit	on	January	31,	1990	with	the	referenced	exhibit	number	as	an	exhibit	to	our	Registration	Statement	on	Form	8-A,	and	the previously	filed	exhibit	is	incorporated	herein	by	reference.

C We	previously	filed	this	exhibit	on	January	29,	1993	with	the	referenced	exhibit	number	as	an	exhibit	to	our	Registration	Statement	on	Form	8-A,	and	the previously	filed	exhibit	is	incorporated	herein	by	reference.

D We	previously	filed	this	exhibit	on	December	22,	1993	with	the	referenced	exhibit	number	as	an	exhibit	to	our	1993	Annual	Report	on	Form	10-K	(SEC	File	No. 000-18281)	for	the	fiscal	year	ended	September	25,	1993,	and	the	previously	filed	exhibit	is	incorporated	herein	by	reference.

E We	previously	filed	this	exhibit	on	December	22,	1994	with	the	referenced	exhibit	number	as	an	exhibit	to	our	1994	Annual	Report	on	Form	10-K	(SEC	File	No. 000-18281)	for	the	fiscal	year	ended	September	24,	1994,	and	the	previously	filed	exhibit	is	incorporated	herein	by	reference.

F We	previously	filed	this	exhibit	on	May	14,	1996,	with	the	referenced	exhibit	number	as	an	exhibit	to	our	1996	Second	Quarter	Report	on	Form	10-Q	(SEC	File No.	000-18281)	for	the	quarter	ended	March	30,	1996,	and	the	previously	filed	exhibit	is	incorporated	herein	by	reference.

G We	previously	filed	this	exhibit	on	January	17,	1997	with	the	referenced	exhibit	number	as	an	exhibit	to	our	Registration	Statement	on	Form	8-A/A	(SEC	File	No. 000-18281),	and	the	previously	filed	exhibit	is	incorporated	herein	by	reference.

H We	previously	filed	this	exhibit	on	August	20,	1997	with	the	referenced	exhibit	number	as	an	exhibit	to	our	Registration	Statement	on	Form	S-8	(SEC	File	No. 333-34003),	and	the	previously	filed	exhibit	is	incorporated	herein	by	reference.

I We	previously	filed	this	exhibit	on	May	11,	1999	with	the	referenced	exhibit	number	as	an	exhibit	to	our	1999	Second	Quarter	Report	on	Form	10-Q	(SEC	File No.	000-18281)	for	the	quarter	ended	March	27,	1999,	and	the	previously	filed	exhibit	is	incorporated	herein	by	reference.

J We	previously	filed	this	exhibit	on	May	20,	1999	with	the	referenced	exhibit	number	as	an	exhibit	to	our	Registration	Statement	on	Form	8-A/A	(SEC	File	No. 000-18281),	and	the	previously	filed	exhibit	is	incorporated	herein	by	reference.

K We	previously	filed	this	exhibit	on	December	23,	1999	with	the	referenced	exhibit	number	as	an	exhibit	to	our	Annual	Report	on	Form	10-K	(SEC	File	No.	000- 18281)	for	the	fiscal	year	ended	September	25,	1999,	and	the	previously	filed	exhibit	is	incorporated	by	reference.

L We	previously	filed	this	exhibit	on	October	2,	2000	with	the	referenced	exhibit	number	as	an	exhibit	to	our	Current	Report	on	Form	8-K	(SEC	File	No.	000- 18281)	dated	as	of	September	15,	2000,	and	the	previously	filed	exhibit	is	incorporated	herein	by	reference.

M Trex	Medical	Corporation	previously	filed	this	exhibit	with	the	referenced	exhibit	number	as	an	Exhibit	to	its	Registration	Statement	on	Form	S-1	(Reg.	No.	333- 2926),	and	the	previously	filed	exhibit	is	incorporated	by	reference.

N We	previously	filed	this	exhibit	on	December	22,	2000	with	the	referenced	exhibit	number	as	an	exhibit	to	our	Annual	Report	on	Form	10-K	(SEC	File	No.	000- 18281)	for	the	fiscal	year	ended	September	30,	2000,	and	the	previously	filed	exhibit	is	incorporated	by	reference.

O We	previously	filed	this	exhibit	on	May	2,	2001	with	the	referenced	exhibit	number	as	an	exhibit	to	our	Registration	Statement	on	Form	S-8	(SEC	File	No.	333- 60046),	and	the	previously	filed	exhibit	is	incorporated	herein	by	reference.

P We	previously	filed	this	exhibit	on	December	12,	2001	with	the	referenced	exhibit	number	as	an	exhibit	to	our	Annual	Report	on	Form	10-K	(SEC	File	No.	000- 18281)	for	the	fiscal	year	ended	September	29,	2001,	and	the	previously	filed	exhibit	is	incorporated	by	reference.

Q We	previously	filed	this	exhibit	on	September	17,	2002	with	the	referenced	exhibit	number	as	an	exhibit	to	our	Registration	Statement	on	Form	8-A	(SEC	File	No. 000-18281),	and	the	previously	filed	exhibit	is	incorporated	herein	by	reference.

R We	previously	filed	this	exhibit	on	June	27,	2002	with	the	referenced	exhibit	number	as	an	exhibit	to	our	Current	Report	on	Form	8-K	(SEC	File	No.	000-18281) dated	as	of	June	27,	2002,	and	the	previously	filed	exhibit	is	incorporated	herein	by	reference.

S We	previously	filed	this	exhibit	on	May	13,	2003	with	the	referenced	exhibit	number	as	an	exhibit	to	our	Quarterly	Report	on	Form	10Q	(SEC	File	No.	000- 18281)	for	the	quarter	ended	March	29,	2003,	and	the	previously	filed	exhibit	is	incorporated	herein	by	reference.

T We	previously	filed	this	exhibit	on	December	24,	2002	with	the	referenced	exhibit	number	as	an	exhibit	to	our	annual	report	on	Form	10-K	(SEC	File	No.	000- 18281)	for	the	fiscal	year	ended	September	28,	2002,	and	the	previously	filed	exhibit	is	incorporated	herein	by	reference.

The	following	Current	Report	on	Form	8-K	was	filed	by	the	registrant	during	the	last	quarter	of	the	period	covered	by	this	report:

Current	Report	on	Form	8-K	filed	on	August	6,	2003	regarding	the	release	of	a	press	release	announcing	the	Company's	financial	results	for	the	third	quarter ended	June	28,	2003.

(d)	Financial	Statement	Schedules.

The	financial	statement	schedules	required	are	included	as	part	of	Item	(2)	above.

# SIGNATURES

Pursuant	to	the	requirements	of	Section	13	or	15(d)	of	the	Securities	Exchange	Act	of	1934,	the	registrant	has	duly	caused	this	report	to	be	signed	on	its	behalf	by	the undersigned,	thereunto	duly	authorized.

# JOHN	W.	CUMMING

Chairman	of	the	Board

and	Chief	Executive	Officer

Pursuant	to	the	requirements	of	the	Securities	Exchange	Act	of	1934,	this	report	has	been	signed	below	by	the	following	persons	on	behalf	of	the	registrant	and	in the	capacities	and	on	the	dates	indicated.

# AUDITED	CONSOLIDATED	FINANCIAL	STATEMENTS

# Report	of	Independent	Auditors

# To	Hologic,	Inc.:

We	have	audited	the	accompanying	consolidated	balance	sheets	of	Hologic,	Inc.	(a	Delaware	corporation)	and	subsidiaries	as	of	September	27,	2003	and	September	28, 2002	and	the	related	consolidated	statements	of	operations,	stockholders'	equity	and	cash	flows	for	the	years	then	ended.	The	financial	statements	of	Hologic,	Inc.	as	of September	29,	2001	and	for	the	year	then	ended	were	audited	by	other	auditors	who	have	ceased	operations	and	whose	report	dated	December	8,	2001,	expressed	an unqualified	opinion	on	those	statements,	before	the	restatement	adjustments	described	in	Note	2.	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	auditing	standards	generally	accepted	in	the	United	States.	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	consolidated	financial	statements	referred	to	above	present	fairly,	in	all	material	respects,	the	consolidated	financial	position	of	Hologic,	Inc.	and subsidiaries	as	of	September	27,	2003	and	September	28,	2002	and	the	results	of	their	operations	and	their	cash	flows	for	the	years	then	ended	in	conformity	with accounting	principles	generally	accepted	in	the	United	States.

As	described	in	Note	2	to	the	consolidated	financial	statements,	in	the	fourth	quarter	of	2003	the	Company	adopted	Emerging	Issues	Task	Force	Issue	(EITF)	No.	00-21, Accounting	for	Revenue	Arrangements	with	Multiple	Deliverables,	through	a	cumulative-effect	adjustment	in	accordance	with	Accounting	Principles	Board	Opinion	No. 20,	Accounting	Changes.

As	discussed	above,	the	financial	statements	of	Hologic,	Inc.	as	of	September	29,	2001,	and	for	year	then	ended	were	audited	by	other	auditors	who	have	ceased operations.	As	described	in	Note	2,	in	2002	the	Company	changed	the	composition	of	its	reportable	segments,	adopted	EITF	No.	00-10,	Accounting	for	Shipping	and Handling	Costs,	early-adopted	Statement	of	Financial	Accounting	Standards	(SFAS)	No.	142,	Goodwill	and	Other	Intangible	Assets,	separately	reported	service	and other	revenues	and	cost	of	revenues	from	product	sales	and	cost	of	sales	and	reclassified	certain	selling	and	marketing	expenses	to	cost	of	service	revenues.	The	2001 financial	statements	have	been	revised	to	conform	to	the	2002	composition	of	reportable	segments	and	to	reflect	the	2002	presentation	of	revenues	and	cost	of	revenues. These	financial	statements	have	also

been	revised	to	include	the	transitional	disclosures	required	by	SFAS	No.	142,	which	was	adopted	by	the	Company	as	of	September	30,	2001.

We	audited	the	adjustments	that	were	applied	to	revise	the	disclosures	for	reportable	segments,	shipping	and	handling	costs,	service	and	other	revenues	and	cost	of service	and	other	revenues	reflected	in	the	2001	and	2000	financial	statements.	With	respect	to	reportable	segments,	our	procedures	included	(a)	agreeing	the	adjusted amounts	of	segment	revenues,	operating	income,	assets,	depreciation	and	amortization	and	capital	expenditures	to	the	Company's	underlying	records	obtained	from management,	and	(b)	testing	the	mathematical	accuracy	of	the	reconciliations	of	segment	amounts	to	the	consolidated	financial	statements.	Our	audit	procedures	with respect	to	the	goodwill	disclosures	in	Note	2	relating	to	2001	included	(a)	agreeing	the	previously	reported	net	income	to	the	previously	issued	financial	statements	and the	adjustments	to	reported	net	income	representing	amortization	expense	recognized	in	2001	related	to	goodwill,	and	(b)	testing	the	mathematical	accuracy	of	the reconciliation	of	adjusted	net	income	to	reported	net	income,	and	the	related	earnings-per-share	amounts.	In	our	opinion,	such	adjustments	and	disclosures	are appropriate	and	have	been	properly	applied.	However,	we	were	not	engaged	to	audit,	review,	or	apply	any	procedures	to	the	2001	financial	statements	of	the	Company other	than	with	respect	to	such	adjustments	and	disclosures	and,	accordingly,	we	do	not	express	an	opinion	or	any	other	form	of	assurance	on	the	2001	financial statements	taken	as	a	whole.

Boston,	Massachusetts

THIS	REPORT	IS	A	CONFORMED	COPY	OF	THE	REPORT	PREVIOUSLY	ISSUED	BY	ARTHUR	ANDERSEN	LLP	AND	HAS	NOT	BEEN	REISSUED	BY THAT	FIRM.

# Report	of	Independent	Public	Accountants

We	have	audited	the	consolidated	balance	sheets	of	Hologic,	Inc.	(a	Delaware	corporation)	and	subsidiaries	as	of	September	29,	2001,	and	the	related	consolidated statement	of	operations,	stockholders'	equity	and	cash	flows	for	the	year	ended	September	29,	2001.	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	audit	in	accordance	with	auditing	standards	generally	accepted	in	the	United	States.	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	audit	provide	a	reasonable	basis	for	our	opinion.

In	our	opinion,	the	consolidated	financial	statements	referred	to	above	present	fairly,	in	all	material	respects,	the	consolidated	financial	position	of	Hologic,	Inc.	and subsidiaries	as	of	September	29,	2001,	and	the	results	of	their	operations	and	their	cash	flows	for	the	year	ended	September	29,	2001,	in	conformity	with	accounting principles	generally	accepted	in	the	United	States.

/s/	Arthur	Andersen	LLP

ARTHUR	ANDERSEN	LLP	WERE	THE	INDEPENDENT	AUDITORS	FOR	HOLOGIC,	INC.	UNTIL	JUNE	23,	2002.	AFTER	REASONABLE	EFFORTS, HOLOGIC	WAS	UNABLE	TO	OBTAIN	FROM	ARTHUR	ANDERSEN	LLP	THE	CONSENT	REQUIRED	FOR	THE	INCORPORATION	BY	REFERENCE	OF THEIR	REPORT	ON	HOLOGIC'S	CONSOLIDATED	BALANCE	SHEET	AS	OF	SEPTEMBER	29,	2001,	AND	THE	RELATED	CONSOLIDATED	STATEMENT OF	OPERATIONS,	STOCKHOLDERS'	EQUITY	AND	CASH	FLOWS	FOR	THE	YEAR	ENDED	SEPTEMBER	29,	2001,	INTO	REGISTRATION	STATEMENTS FILED	BY	HOLOGIC,	INC.	WITH	THE	SECURITIES	AND	EXCHANGE	COMMISSION	THAT	ARE	CURRENTLY	EFFECTIVE	UNDER	THE	SECURITIES ACT	OF	1933.	ACCORDINGLY,	PURSUANT	TO	AND	IN	RELIANCE	UPON	RULE	437A	OF	THE	SECURITIES	ACT	OF	1933,	HOLOGIC	IS	PERMITTED	TO DISPENSE	WITH	THE	REQUIREMENT	TO	FILE	THEIR	CONSENT.	BECAUSE	ARTHUR	ANDERSEN	LLP	HAVE	NOT	CONSENTED	TO	THE INCORPORATION	BY	REFERENCE	OF	THEIR	REPORT,	INVESTORS	MAY	NOT	BE	ABLE	TO	RECOVER	DAMAGES	AGAINST	ARTHUR	ANDERSEN LLP	UNDER	SECTION	11	OF	THE	SECURITIES	ACT	OF	1933	FOR	ANY	UNTRUE	STATEMENTS	OF	A	MATERIAL	FACT	CONTAINED	IN	THE FINANCIAL	STATEMENTS	AUDITED	BY	ARTHUR	ANDERSEN	LLP	THAT	ARE	INCLUDED	IN	THIS	REPORT	OR	ANY	OMISSIONS	TO	STATE	A MATERIAL	FACT	REQUIRED	TO	BE	STATED	THEREIN.

# Consolidated	Balance	Sheets

# (In	thousands,	except	per	share	data)

|  | September	27,<br>2003 | September	28,<br>2002 |
| :--- | :--- | :--- |
| Assets |  |  |
| Current\tassets: |  |  |
| Cash\tand\tcash\tequivalents | $45,177 | $45,836 |
| Accounts\treceivable,\tless\treserves\tof\t$3,477\tand\t$4,693,\trespectively | 43,831 | 39,440 |
| Inventories | 43,426 | 37,855 |
| Prepaid\texpenses\tand\tother\tcurrent\tassets | 9,554 | 14,811 |
| Total\tcurrent\tassets | 141,988 | 137,942 |
| Property\tand\tequipment,\tat\tcost: |  |  |
| Land | 1,500 | 1,500 |
| Buildings\tand\timprovements | 13,607 | 13,387 |
| Equipment | 33,505 | 27,112 |
| Furniture\tand\tfixtures | 3,660 | 3,607 |
| Leasehold\timprovements | 2,637 | 1,684 |
|  | 54,909 | 47,290 |
| Less—accumulated\tdepreciation\tand\tamortization | 22,803 | 17,910 |
|  | 32,106 | 29,380 |
| Intangible\tassets: |  |  |
| Patented\ttechnology,\tnet\tof\taccumulated\tamortization\tof\t$5,732\tand\t$4,705,\trespectively | 1,702 | 2,529 |
| Developed\ttechnology\tand\tknow-how,\tnet\tof\taccumulated\tamortization\tof\t$3,405\tand\t$1,903,\trespectively | 6,338 | 7,248 |
| Goodwill,\tnet\tof\taccumulated\tamortization\tof\t$592 | 5,810 | 5,989 |
|  | 13,850 | 15,766 |
| Other\tassets,\tnet | 659 | 1,059 |
| Total\tassets | $188,603 | $184,147 |
| Liabilities |  |  |
| Current\tliabilities: |  |  |
| Current\tportion\tof\tnote\tpayable | $480 | $480 |
| Accounts\tpayable | 10,819 | 10,929 |
| Accrued\texpenses | 17,387 | 18,807 |
| Deferred\trevenue |  |  |
|  | 9,440 | 9,254 |
| Total\tcurrent\tliabilities | 38,126 | 39,470 |
| Notes\tpayable,\tnet\tof\tcurrent\tportion | 1,550 | 2,268 |
| Commitments\tand\tcontingencies\t(Notes\t9\tand\t13) |  |  |
| Stockholders'\tequity: |  |  |
| Preferred\tstock,\t$0.01\tpar\tvalue–1,623\tshares\tauthorized;\t0\tshares\tissued | — | — |
|  | 200 | 195 |
| Capital\tin\texcess\tof\tpar\tvalue | 144,455 | 141,405 |
| Retained\tearnings | 6,032 | 3,150 |
| Accumulated\tother\tcomprehensive\tloss | (1,296) | (1,877) |
| Treasury\tstock,\tat\tcost—45\tshares | (464) | (464) |
| Total\tstockholders'\tequity | 148,927 | 142,409 |
| Total\tliabilities\tand\tstockholders'\tequity | $188,603 | $184,147 |

# Consolidated	Statements	of	Operations

|  | September	27,<br>2003 | September	28,<br>2002 | September	29,<br>2001 |
| :--- | :--- | :--- | :--- |
| Revenues: |  |  |  |
| Product\tsales | $156,734 | $144,684 | $135,067 |
| Service\tand\tother\trevenue | 47,301 | 45,508 | 45,129 |
|  | 204,035 | 190,192 | 180,196 |
| Costs\tand\texpenses: |  |  |  |
| Cost\tof\tproduct\tsales | 86,506 | 84,230 | 85,712 |
| Cost\tof\tservice\tand\tother\trevenue | 43,949 | 34,146 | 33,734 |
| Research\tand\tdevelopment | 18,381 | 20,362 | 23,328 |
| Selling\tand\tmarketing | 29,978 | 28,319 | 33,858 |
| General\tand\tadministrative | 22,196 | 18,908 | 20,852 |
| Restructuring\tand\trelocation | — | 2,070 | 1,518 |
|  | 201,010 | 188,035 | 199,002 |
| Income\t(loss)\tfrom\toperations | 3,025 | 2,157 | (18,806) |
| Interest\tincome | 685 | 573 | 1,027 |
| Interest/other\texpense | (445) | (2,980) | (2,902) |
| Income\t(loss)\tbefore\tprovision\t(benefit)\tfor\tincome\ttaxes | 3,265 | (250) | (20,681) |
| Provision\t(benefit)\tfor\tincome\ttaxes | 176 | (429) | 169 |
| Income\t(loss)\tbefore\tcumulative\teffect\tof\tchange\tin\taccounting\tprinciple | 3,089 | 179 | (20,850) |
| Cumulative\teffect\tof\tchange\tin\taccounting\tprinciple | (207) | — | — |
| Net\tincome\t(loss) | $2,882 | $179 | $(20,850) |

# Consolidated	Statements	of	Operations	(continued)

|  | September	27,<br>2003 | September	28,<br>2002 | September	29,<br>2001 |
| :--- | :--- | :--- | :--- |
| Basic\tincome\t(loss)\tper\tcommon\tand\tcommon\tequivalent\tshare: |  |  |  |
| Income\t(loss)\tbefore\tcumulative\teffect\tof\tchange\tin\taccounting\tprinciple | $0.16 | $0.01 | $(1.35) |
| Cumulative\teffect\tof\tchange\tin\taccounting\tprinciple | (0.01) | — | — |
| Net\tincome\t(loss) | $0.15 | $0.01 | $(1.35) |
| Diluted\tincome\t(loss)\tper\tcommon\tand\tcommon\tequivalent\tshare: |  |  |  |
| Income\t(loss)\tbefore\tcumulative\teffect\tof\tchange\tin\taccounting\tprinciple | $0.15 | $0.01 | $(1.35) |
| Cumulative\teffect\tof\tchange\tin\taccounting\tprinciple | (0.01) | — | — |
| Net\tincome\t(loss) | $0.14 | $0.01 | $(1.35) |
| Weighted\taverage\tnumber\tof\tcommon\tshares\toutstanding:\nBasic | 19,629 | 18,419 | 15,475 |
| Diluted | 20,130 | 19,192 | 15,475 |

# Consolidated	Statements	of	Stockholders'	Equity

|  | Common	Stock<br>Number<br>of	Shares | $0.01	Par<br>Value | Capital	in<br>Excess	of<br>Par	Value | Retained<br>Earnings | Treasury	Stock<br>Number<br>of	Shares | Amount | Accumulated<br>Other<br>Comprehensive<br>Loss | Total<br>Stockholders'<br>Equity | Comprehensive<br>Income<br>(Loss) |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| Balance\tat\tSeptember\t30,\t2000 | 15,417 | $154 | $110,233 | $23,821 | 45 | $(464) | $(2,172) | $131,572 | $— |
| Exercise\tof\tstock\toptions | 128 | 1 | 469 | — | — | — | — | 470 | — |
| Stock\tissued\tfor\temployee |  |  |  |  |  |  |  |  |  |
| compensation | 25 | 1 | 165 | — | — | — | — | 166 | — |
| Issuance\tof\tcommon\tstock |  |  |  |  |  |  |  |  |  |
| under\temployee\tstock |  |  |  |  |  |  |  |  |  |
| purchase\tplan | 100 | 1 | 433 | — | — | — | — | 434 | — |
| Net\tloss | — | — | — | (20,850) | — | — | — | (20,850) | (20,850) |
| Translation\tadjustments | — | — | — | — | — | — | 15 | 15 | 15 |
| Comprehensive\tloss |  |  |  |  |  |  |  |  | $(20,835) |
| Balance\tat\tSeptember\t29,\t2001 | 15,670 | 157 | 111,300 | 2,971 | 45 | (464) | (2,157) | 111,807 | — |
| Sale\tof\tcommon\tstock,\tnet\tof |  |  |  |  |  |  |  |  |  |
| issuance\tcosts\tof\t$2,220 | 3,000 | 30 | 24,750 | — | — | — | — | 24,780 | — |
| Exercise\tof\tstock\toptions | 595 | 6 | 4,203 | — | — | — | — | 4,209 | — |
| Stock\tissued\tfor\temployee |  |  |  |  |  |  |  |  |  |
| compensation | 140 | 1 | 801 | — | — | — | — | 802 | — |
| Issuance\tof\tcommon\tstock |  |  |  |  |  |  |  |  |  |
| under\temployee\tstock |  |  |  |  |  |  |  |  |  |
| purchase\tplan | 56 | 1 | 351 | — | — | — | — | 352 | — |
| Net\tincome | — | — | — | 179 | — | — | — | 179 | 179 |
| Translation\tadjustments | — | — | — | — | — | — | 280 | 280 | 280 |
| Comprehensive\tincome |  |  |  |  |  |  |  |  | $459 |
| Balance\tat\tSeptember\t28,\t2002 | 19,461 | 195 | 141,405 | 3,150 | 45 | (464) | (1,877) | 142,409 |  |

# Consolidated	Statements	of	Stockholders'	Equity	(continued)

|  | Common	Stock<br>Number<br>of	Shares | $0.01	Par<br>Value | Capital	in<br>Excess	of<br>Par	Value | Retained<br>Earnings | Treasury	Stock<br>Number<br>of	Shares | Amount | Accumulated<br>Other<br>Comprehensive<br>Loss | Total<br>Stockholders'<br>Equity | Comprehensive<br>Income<br>(Loss) |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| Balance\tat\tSeptember\t28,\t2002 | 19,461 | $195 | $141,405 | $3,150 | 45 | $(464) | $(1,877) | $142,409 | $— |
| Exercise\tof\tstock\toptions | 470 | 5 | 2,659 | — | — | — | — | 2,664 | — |
| Issuance\tof\tcommon\tstock\tunder |  |  |  |  |  |  |  |  |  |
| employee\tstock\tpurchase\tplan | 37 | — | 391 | — | — | — | — | 391 | — |
| Expiration\tof\trestricted\tstock |  |  |  |  |  |  |  |  |  |
| awards | (2) | — | — | — | — | — | — | — | — |
| Net\tincome | — | — | — | 2,882 | — | — | — | 2,882 | 2,882 |
| Translation\tadjustments | — | — | — | — | — | — | 581 | 581 | 581 |
| Comprehensive\tincome |  |  |  |  |  |  |  |  | $3,463 |
| Balance\tat\tSeptember\t27,\t2003 | 19,966 | $200 | $144,455 | $6,032 | 45 | $(464) | $(1,296) | $148,927 |  |

See	accompanying	notes.

# Consolidated	Statements	of	Cash	Flows

# (In	thousands)

|  | September	27,<br>2003 | September	28,<br>2002 | September	29,<br>2001 |
| :--- | :--- | :--- | :--- |
| Operating\tactivities |  |  |  |
| Net\tincome\t(loss) | $2,882 | $179 | $(20,850) |
| Adjustments\tto\treconcile\tnet\tincome\t(loss)\tto\tnet\tcash\tprovided\tby\t(used\tin)\toperating |  |  |  |
| activities: |  |  |  |
| Depreciation | 5,491 | 5,395 | 6,189 |
| Amortization | 1,914 | 2,081 | 2,546 |
| Noncash\tinterest\texpense | 186 | 187 | — |
| Reversal\tof\tpreviously\trecorded\tTrex\treserves | — | — | (2,004) |
| Deferred\tincome\ttaxes | — | 3,896 | 293 |
| Loss\ton\tsale/leaseback | — | 93 | — |
| Compensation\texpense\trelated\tto\tissuance\tof\tcommon\tstock\tand\tstock\toptions | — | — | 968 |
| Changes\tin\tassets\tand\tliabilities: |  |  |  |
| Accounts\treceivable | (4,096) | 3,168 | 8,114 |
| Inventories | (5,074) | 1,641 | 2,310 |
| Prepaid\texpenses\tand\tother\tcurrent\tassets | 5,303 | 1,998 | (2,098) |
| Accounts\tpayable | (167) | (7,290) | 4,698 |
| Accrued\texpenses | (1,673) | (4,823) | (7,428) |
| Deferred\trevenue | (35) | 436 | (2,989) |
| Net\tcash\tprovided\tby\t(used\tin)\toperating\tactivities | 4,731 | 6,961 | (10,251) |
| Investing\tactivities |  |  |  |
| Proceeds\tfrom\tsettlement\tof\tTrex\tpurchase\tprice | — | — | 932 |
| Proceeds\tfrom\tsale/leaseback,\tnet\tof\tcosts | — | 31,372 | — |
| Purchase\tof\tproperty\tand\tequipment | (8,146) | (6,138) | (4,330) |
| Decrease\t(increase)\tin\tother\tassets | 224 | (122) | (1,259) |
| Net\tcash\t(used\tin)\tprovided\tby\tinvesting\tactivities | (7,922) | 25,112 | (4,657) |
| Financing\tactivities |  |  |  |
| (Repayments)\tborrowings\tunder\tlines\tof\tcredit | — | (2,150) | 1,610 |
| Issuance\tof\tnote\tpayable | — | 24 | 2,360 |
| Repayments\tof\tnote\tpayable | (718) | (26,177) | (9) |
| Net\tproceeds\tfrom\tsale\tof\tcommon\tstock | 3,055 | 29,341 | 904 |
| Net\tcash\tprovided\tby\tfinancing\tactivities | 2,337 | 1,038 | 4,865 |
| Effect\tof\texchange\trate\tchanges\ton\tcash | 195 | (29) | 19 |

# Consolidated	Statements	of	Cash	Flows	(continued)

|  | September	27,<br>2003 | September	28,<br>2002 | September	29,<br>2001 |
| :--- | :--- | :--- | :--- |
| Net\t(decrease)\tincrease\tin\tcash\tand\tcash\tequivalents | $(659) | $33,082 | $(10,024) |
| Cash\tand\tcash\tequivalents,\tbeginning\tof\tperiod | 45,836 | 12,754 | 22,778 |
| Cash\tand\tcash\tequivalents,\tend\tof\tperiod | $45,177 | $45,836 | $12,754 |
| Supplemental\tDisclosure\tof\tCash\tFlow\tInformation: |  |  |  |
| Cash\tpaid\tduring\tthe\tperiod\tfor\tincome\ttaxes | $178 | $236 | $166 |
| Cash\tpaid\tduring\tthe\tperiod\tfor\tinterest | $172 | $3,072 | $2,933 |
| Supplemental\tDisclosure\tof\tNoncash\tFinancing\tActivities: |  |  |  |
| Stock\tissued\tfor\temployee\tcompensation | $— | $802 | $— |
|  | $— | $— | $1,550 |

# 1.	Operations

Hologic,	Inc.	(the	Company	or	Hologic)	is	engaged	in	the	development,	manufacture	and	distribution	of	diagnostic	and	medical	imaging	systems	primarily	serving	the healthcare	needs	of	women.	The	Company's	core	women's	healthcare	business	units	are	focused	on	osteoporosis	assessment,	mammography	and	breast	biopsy	and	on developing	a	direct-to-digital	X-ray	mammography	system.

# 2.	Summary	of	Significant	Accounting	Policies

The	accompanying	consolidated	financial	statements	reflect	the	application	of	certain	accounting	policies	as	described	in	this	note	and	elsewhere	in	the	accompanying consolidated	financial	statements.

The	Company	believes	that	a	critical	accounting	policy	is	one	that	is	both	important	to	the	portrayal	of	the	Company's	financial	condition	and	results	and	requires management's	most	difficult,	subjective	or	complex	judgments,	often	as	the	result	of	the	need	to	make	estimates	about	the	effect	of	matters	that	are	inherently	uncertain.

# Principles	of	Consolidation

The	accompanying	consolidated	financial	statements	include	the	accounts	of	the	Company	and	all	of	its	wholly	owned	subsidiaries.	All	material	intercompany	accounts and	transactions	have	been	eliminated	in	consolidation.

# Fiscal	Year

# Management's	Estimates	and	Uncertainties

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

# Notes	to	Consolidated	Financial	Statements	(continued)

# 2.	Summary	of	Significant	Accounting	Policies	(continued)

The	Company	is	subject	to	a	number	of	risks	similar	to	those	of	other	companies	of	similar	size	in	its	industry,	including	a	recent	history	of	pre-tax	losses,	early	stage	of development	of	direct-to-digital	products,	rapid	technological	changes,	competition,	limited	number	of	suppliers,	customer	concentration,	integration	of	acquisitions, government	regulations,	management	of	international	activities	and	dependence	on	key	individuals.

# Cash	and	Cash	Equivalents

The	Company	considers	its	highly	liquid	investments	with	maturities	of	three	months	or	less	at	the	time	of	acquisition	to	be	cash	equivalents.	Included	in	cash equivalents	at	September	27,	2003	and	September	28,	2002	are	approximately	$263	and	$259,	respectively,	of	securities	purchased	under	agreements	to	resell.	The securities	purchased	under	agreements	to	resell	are	collateralized	by	U.S.	government	securities.	At	September	27,	2003	and	September	28,	2002	the	Company's	other cash	equivalents	consisted	of	money	market	accounts.

# Concentrations	of	Credit	Risk

Financial	instruments	that	subject	the	Company	to	credit	risk	primarily	consist	of	cash	and	cash	equivalents,	trade	accounts	receivable	and	long-term	receivables.	The Company's	credit	risk	is	managed	by	investing	its	cash	and	cash	equivalents	in	high-quality	money	market	instruments	and	securities	of	the	U.S.	government	and	its agencies.	The	Company	generally	has	not	experienced	any	material	losses	related	to	receivables	from	individual	customers	or	groups	of	customers	in	the	X-ray	and medical	devices	industry.	The	Company	does	not	require	collateral.	Due	to	these	factors,	no	significant	additional	credit	risk,	beyond	amounts	provided	for,	is	believed by	management	to	be	inherent	in	the	Company's	accounts	receivable.

The	Company	historically	utilized	a	distributor	in	the	United	States	for	certain	product	lines.	In	the	first	quarter	of	fiscal	2003,	this	distributor	sold	one	of	its	wholly owned	subsidiaries	to	another	company	creating	a	new	distributor	for	the	Company's	mammography	systems.	On	January	1,	2003,	the	Company	terminated	its relationship	with	this	new	distributor	and	commenced	a	direct	sales	effort	in	the	U.S.	for	the	product	lines	carried	by	this	distributor.	The	Company	had	accounts receivable	from	the	new	distributor	of	approximately	$937	as	of	September	27,	2003	and	accounts	receivable	from	the	historical	distributor	of	approximately	$3,118	and $7,775	as	of	September	27,	2003	and	September	28,	2002,	respectively.	The	new	distributor	accounted	for	4%	of	revenues	for	the	year	ended	September	27,	2003.	The historical	distributor	accounted	for	12%,	24%,	and	20%	of	product	revenues	for	fiscal	2003,	2002,	and

2001,	respectively.	There	were	no	other	customers	with	balances	greater	than	10%	of	accounts	receivable	as	of	September	27,	2003	or	September	28,	2002	or	customers that	represented	greater	than	10%	of	product	revenues	for	fiscal	2003,	2002	and	2001.

In	prior	years	the	Company	financed	certain	sales	to	Latin	American	customers	over	two	to	three	years.	The	economic	and	currency	related	uncertainties	in	these countries	may	increase	the	likelihood	of	nonpayment.	As	a	result,	the	Company	increased	its	bad	debt	reserve	during	fiscal	2000	and	believes	that	its	financial	statement exposure	related	to	the	Latin	American	receivables	is	not	significant	as	of	September	27,	2003.

# Disclosure	of	Fair	Value	of	Financial	Instruments

The	Company's	financial	instruments	mainly	consist	of	cash,	accounts	receivable,	lines	of	credit,	long-term	receivables,	accounts	payable	and	notes	payable.	The carrying	amounts	of	the	Company's	cash	equivalents,	accounts	receivable,	lines	of	credit	and	accounts	payable	approximate	fair	value	due	to	the	short-term	nature	of these	instruments.	The	notes	payable	to	Wells	Fargo	Foothill,	Inc.	and	Fleet	Business	Credit,	LLC	have	variable	interest	rates	and,	therefore,	fluctuate	based	on	market conditions.	As	of	September	27,	2003,	the	fair	values	of	the	notes	payable	approximate	their	carrying	amounts	based	on	comparable	market	terms	and	conditions.

# Inventories

Inventories	are	stated	at	the	lower	of	cost	(first-in,	first-out)	or	market	and	consist	of	the	following:

| September	27,<br>2003 | September	28,<br>2002 |
| :--- | :--- |
| $33,596 | $30,637 |
| 9,830 | 7,218 |
| $43,426 | $37,855 |

Work-in-process	and	finished	goods	inventories	consist	of	materials,	labor	and	manufacturing	overhead.

# Property	and	Equipment

The	Company	provides	for	depreciation	and	amortization	by	charges	to	operations,	using	the	straight-line	method,	which	allocate	the	cost	of	property	and	equipment over	the	following	estimated	useful	lives:

The	Company	applies	the	provisions	of	American	Institute	of	Certified	Public	Accountants	Statement	of	Position	(SOP)	98-1,	Software	Developed	or	Obtained	for Internal	Use.	SOP	98-1	requires	computer	software	costs	associated	with	internal	use	software	to	be	expensed	as	incurred	until	certain	capitalization	criteria	are	met. SOP	98-1	also	defines	which	types	of	costs	should	be	capitalized	and	which	should	be	expensed.	The	Company	capitalized	$1,433	and	$2,280	during	fiscal	2003	and 2002,	respectively	related	to	a	company	wide	Enterprise	Resource	Planning	(ERP)	systems	implementation	project	and	has	included	these	amounts	in	equipment	in	the accompanying	consolidated	balance	sheet.	The	Company	began	to	amortize	such	costs	during	2003	when	the	ERP	system	became	operational.

In	September	2002,	the	Company	completed	a	sale/leaseback	of	its	Bedford,	Massachusetts,	and	Danbury,	Connecticut	facilities,	resulting	in	a	loss	of	$93,	which	is included	in	interest/other	expense	in	the	accompanying	consolidated	statement	of	operations.	Under	the	terms	of	the	sale/leaseback,	the	Company	entered	into	a	20-year operating	lease	agreement	for	the	facilities	requiring	annual	rent	payments	of	$3,156,	in	addition	to	all	operating	costs.

In	applying	the	provisions	of	Statement	of	Financial	Accounting	Standards	(SFAS)	No.	13,	Accounting	for	Leases,	certain	judgments	and	estimates	were	made	to determine	if	the	agreement	should	be	accounted	for	as	a	capital	or	operating	lease.	Most	significant	is	the	determination	of	the	Company's	incremental	borrowing	rate	in calculating	the	present	value	of	minimum	lease	payments	in	the	event	the	rate	implicit	in	the	lease	is	unknown.	In	order	for	a	lease	agreement	to	be	accounted	as	an operating	lease,	among	other	requirements,	the	present	value	of	the	minimum	lease	payments	may	not	be	greater	than	90%	of	the	fair	value	of	the	leased	asset.	In determining	the	Company's	incremental	borrowing	rate	management	considered,	among	other	things,	quotes	obtained	from	several	lenders	assuming	the	Company	was financing	a	purchase	of	the	facility.

# Long-Lived	Assets

The	Company	assesses	the	realizability	of	its	long-lived	assets,	including	intangible	assets	except	goodwill,	in	accordance	with	SFAS	No.	144,	Accounting	for Impairment	or	Disposal	of	Long-Lived	Assets.	To	date,	the	Company	has	not	identified	any	impairments	requiring	adjustment.

In	July	2001,	the	Financial	Accounting	Standards	Board	(FASB)	issued	SFAS	No.	142,	Goodwill	and	Other	Intangible	Assets.	This	statement	applies	to	goodwill	and intangible	assets	acquired	after	June	30,	2001,	as	well	as	goodwill	and	intangible	assets	previously	acquired.	Under	this	statement,	goodwill	is	no	longer	amortized; instead	goodwill	is	reviewed	for	impairment	annually,	at	a	minimum,	by	applying	a	fair-value-based	test.	The	Company	early	adopted	this	statement	effective	in	the	first quarter	of	the	fiscal	year	ended	September	28,	2002.	Accordingly,	the	Company	reclassified	the	net	book	value	of	assembled	workforce	of	approximately	$1,586	to goodwill	and	ceased	amortization	of	all	goodwill.

During	the	second	quarter	of	fiscal	2002,	the	Company	engaged	an	independent	appraiser,	experienced	in	conducting	these	impairment	tests,	to	complete	the	fair-value- based	test	of	the	Company's	goodwill	and	concluded	that	goodwill	was	deemed	not	to	be	impaired	for	fiscal	2002.	The	independent	appraiser	also	performed	an impairment	review	during	fiscal	2003	and	concluded	that	goodwill	was	deemed	not	to	be	impaired	for	fiscal	2003.

Unaudited	adjusted	net	income	(loss)	and	earnings	(loss)	per	share,	assuming	the	adoption	of	Statement	142	occurred	on	October	1,	2000	are	as	follows:

|  | September	27,<br>2003 | September	28,<br>2002 | September	29,<br>2001 |
| :--- | :--- | :--- | :--- |
| Reported\tnet\tincome\t(loss) | $2,882 | $179 | $(20,850) |
| Add\tback:\tGoodwill\tand\tassembled\tworkforce\tamortization | — | — | 549 |
| Adjusted\tnet\tincome\t(loss) | $2,882 | $179 | $(20,301) |
| Basic\tearnings\tper\tshare: |  |  |  |
| Reported\tnet\tincome\t(loss) | $0.15 | $0.01 | $(1.35) |
| Goodwill\tand\tassembled\tworkforce\tamortization | — | — | 0.04 |
| Adjusted\tnet\tincome\t(loss) | $0.15 | $0.01 | $(1.31) |
| Diluted\tearnings\tper\tshare: |  |  |  |
| Reported\tnet\tincome\t(loss) | $0.14 | $0.01 | $(1.35) |
| Goodwill\tand\tassembled\tworkforce\tamortization | — | — | 0.04 |
| Adjusted\tnet\tincome\t(loss) | $0.14 | $0.01 | $(1.31) |

# Deferred	Financing	Costs

Included	in	other	assets	in	the	accompanying	balance	sheets	as	of	September	27,	2003	and	September	28,	2002	are	deferred	financing	costs	of	approximately	$255	and $441,	respectively,	related	to	the	Company's	closing	of	the	credit	facility	with	Foothill	Capital	Corporation	on	September	21,	2001	(see	Note	4.)	The	Company	is amortizing	these	amounts	to	interest	expense	over	a	three-year	period,	which	approximates	the	level	yield	method.	The	Company	amortized	$186	and	$187	to	interest expense	related	to	these	amounts	during	the	years	ended	September	27,	2003	and	September	28,	2002,	respectively.

# Foreign	Currency	Translation

The	Company	translates	the	financial	statements	of	its	foreign	subsidiaries	in	accordance	with	SFAS	No.	52,	Foreign	Currency	Translation.	In	translating	the	accounts of	the	foreign	subsidiaries	into	U.S.	dollars,	assets	and	liabilities	are	translated	at	the	rate	of	exchange	in	effect	at	year-end,	while	stockholders'	equity	is	translated	at historical	rates.	Revenue	and	expense	accounts	are	translated	using	the	weighted	average	exchange	rate	in	effect	during	the	year.	Gains	and	losses	from	foreign	currency translation	are	credited	or	charged	to	cumulative	translation	adjustment,	included	in	stockholders'	equity,	in	the	accompanying	consolidated	balance	sheets.

Transaction	gains	and	losses	in	fiscal	2003,	2002	and	2001	were	not	significant.

The	Company	recognizes	product	revenue	upon	shipment,	provided	that	there	is	persuasive	evidence	of	an	arrangement,	there	are	no	uncertainties	regarding	acceptance, the	sales	price	is	fixed	or	determinable	and	collection	of	the	resulting	receivable	is	probable.	Generally,	the	Company's	product	arrangements	are	multiple	element arrangements,	including	services	such	as	installation	and	training.	Beginning	in	the	fourth	quarter	of	fiscal	2003,	the	Company	must	account	for	these	arrangements	in accordance	with	Emerging	Issues	Task	Force	(EITF)	Issue	No.	00-21,	Accounting	for	Revenue	Arrangements	with	Multiple	Deliverables.	Based	on	the	terms	and conditions	of	the	product	arrangements,	the	Company	has	concluded	that	these	services	can	be	accounted	for	separately	from	the	product	element	as	the	Company's product	has	value	to	its	customers	on	a	stand-alone	basis	and	the	Company	has	objective	and	reliable	evidence	of	the	fair	value	of	such	services.	Accordingly,	service revenue	representing	the	fair	value	of	services	not	yet	performed	at	the	time	of	product	shipment	will	be	deferred	and	recognized	as	such	services	are	performed.	The residual	revenue	under	the	product	arrangement	will	be	recognized	as	product	revenue	upon	shipment.	The	Company	adopted	EITF	00-21	as	the	cumulative	effect	of	a change	in	accounting	principle	in	accordance	with	Accounting	Principles	Board	(APB)	Opinion	No.	20,	Accounting	Changes.	In	connection	with	the	adoption	of	EITF 00-21,	the	Company	reclassified	$4,150	and	$2,910	of	product	revenue	to	service	revenue	for	the	years	ended	September	28,	2002	and	September	29,	2001,	respectively. The	Company	has	not	presented	the	pro	forma	presentation	of	the	cumulative	catch-up	adjustment	as	the	change	was	not	material.

The	Company	recognizes	product	revenue	upon	the	completion	of	installation	for	shipments	that	require	more	than	perfunctory	obligations	at	the	time	of	shipment, specifically	for	its	digital	imaging	systems.	A	provision	is	made	at	that	time	for	estimated	warranty	costs	to	be	incurred.

Service	revenues	primarily	consist	of	fee-per-scan	revenues,	amounts	recorded	under	maintenance	contracts	and	repairs	not	covered	under	warranty,	installation	and training	revenues,	as	well	as	shipping	and	handling	costs	billed	to	customers.	Fee-per-scan	revenues	have	been	recorded	as	the	fees	are	collected.	Maintenance	contract revenues	are	recognized	ratably	over	the	term	of	the	contract.	Other	service	revenues	are	recorded	when	the	services	are	completed.

# Stock-Based	Compensation

At	September	27,	2003,	the	Company	has	several	stock-based	employee	compensation	plans,	which	are	more	fully	described	in	Note	6.	The	Company	accounts	for	its stock-based	compensation	plans	under	the	intrinsic	method	of	APB	Opinion	No.	25,	Accounting	for	Stock	Issued	to	Employees,	and	related	interpretations.	The	stock- based	compensation	recorded	in	the	year	ended	September	29,	2001	of	$166	is	the	result	of	awarding	restricted	common	shares	to	certain	key	employees.	The	value	of these	shares,	as	measured	based	on	the	market	value	of	the	Company's	common	stock	on	the	date	of	award,	is	being	amortized	on	a	straight-line	basis	over	the	period	in which	the	restrictions	lapse,	if	any.	No	stock-based	compensation	cost	is	reflected	in	net	income	for	the	years	ended	September	27,	2003	or	September	28,	2002,	as	all options	granted	under	the	plans	for	those	years	had	an	exercise	price	equal	to	the	market	value	of	the	underlying	common	stock	on	the	date	of	grant.	Additionally,	the Company	has	not	issued	any	stock	awards	to	non-employees.

The	Company	has	adopted	the	disclosure-only	provisions	of	SFAS	No.	148,	Accounting	for	Stock-Based	Compensation-Transition	and	Disclosure,	an	amendment	of FASB	Statement	No.	123,	therefore,	no	compensation	expense	was	recognized	for	the	Company's	stock	option	plans.	Had	compensation	expense	for	the	Company's stock	option	plans	been	determined	based	on	the	fair	value	at	the	grant	date	for	awards	under	these	plans,	consistent	with	the	methodology	prescribed	under	SFAS	No. 148,	the	Company's	net	income	(loss)	and	earnings	(loss)	per	share	would	have	approximated	the	pro	forma	amounts	indicated	below	for	the	fiscal	years	2003,	2002	and 2001:

|  | September	27,<br>2003 | September	28,<br>2002 | September	29,<br>2001 |
| :--- | :--- | :--- | :--- |
| Net\tincome\t(loss)\tas\treported | $2,882 | $179 | $(20,850) |
| Less:\tTotal\tstock-based\temployee\tcompensation\texpense\tdetermined\tunder\tfair-value-based |  |  |  |
| method\tfor\tall\tawards,\tnet\tof\trelated\ttax\teffects | (3,198) | (4,678) | (3,300) |
| Pro\tforma\tnet\tloss | $(316) | $(4,499) | $(24,150) |
| Diluted\tnet\tincome\t(loss)\tper\tshare,\tas\treported | $0.14 | $0.01 | $(1.35) |
| Pro\tforma\tdiluted\tnet\tloss\tper\tshare | $(0.02) | $(0.24) | $(1.56) |
| Weighted\taverage\tfair\tvalue\tof\toptions\tgranted | $5.66 | $5.10 | $3.32 |
| Weighted\taverage\tremaining\tcontractual\tlife\tof\toptions\toutstanding | 6.87\tyears | 7.58\tyears | 7.46\tyears |

The	weighted	average	fair	value	of	each	stock	option	included	in	the	preceding	pro	forma	amounts	was	estimated	using	the	Black-Scholes	option-pricing	model	and	is amortized	over	the	vesting	period	of	the	underlying	options.	The	assumptions	used	to	calculate	the	SFAS	No.	148	pro	forma	disclosure	and	the	weighted	average information	for	the	fiscal	years	ended	2003,	2002	and	2001:

# Net	Income	(Loss)	Per	Share

Basic	and	diluted	net	income	(loss)	per	share	is	presented	in	conformity	with	SFAS	No.	128,	Earnings	per	Share.	Basic	net	income	(loss)	per	share	is	computed	by dividing	net	income	(loss)	by	the	weighted	average	number	of	common	shares	outstanding	during	the	period.	Dilutive	net	income	per	share	in	2003	and	2002	includes the	effects	of	all	dilutive,	potentially	issuable	common	shares	using	the	treasury	stock	method.	Diluted	net	loss	per	share	in	2001	is	computed	in	the	same	way	as	basic, as	all	common	equivalent	shares	are	considered	antidilutive	due	to	the	Company's	net	loss	position.

Basic	and	diluted	weighted	average	common	shares	for	fiscal	years	2003,	2002,	and	2001	are	as	follows	(in	thousands):

|  | September	27,<br>2003 | September	28,<br>2002 | September	29,<br>2001 |
| :--- | :--- | :--- | :--- |
| Basic\tweighted\taverage\tcommon\tshares\toutstanding | 19,629 | 18,419 | 15,475 |
| Weighted\taverage\tcommon\tequivalent\tshares | 501 | 773 | — |
| Diluted\tweighted\taverage\tcommon\tshares\toutstanding | 20,130 | 19,192 | 15,475 |

Dilutive	weighted	average	shares	outstanding	do	not	include	1,195,	1,071	and	3,367	common-equivalent	shares	for	the	end	of	fiscal	years	2003,	2002	and	2001, respectively,	as	their	effect	would	have	been	antidilutive.

# Derivative	Financial	Instruments

At	September	27,	2003	and	September	28,	2002,	the	Company	had	no	derivative	financial	instruments.

# Product	Warranties

The	Company	typically	offers	a	one-year	warranty	for	all	of	its	products.	The	Company	provides	for	the	estimated	cost	of	product	warranties	at	the	time	product	revenue is	recognized.	Factors	that	affect	the	Company's	warranty	reserves	include	the	number	of	units	sold,	historical	and	anticipated	rates	of	warranty	repairs	and	the	cost	per repair.	The	Company	periodically	assesses	the	adequacy	of	the	warranty	reserve	and	adjusts	the	amount	as	necessary.

Product	warranty	activity	for	the	year	ended	September	27,	2003	is	as	follows	(in	thousands):

| Balance	at<br>September	28,	2002 | Charged	to	Costs<br>and	Expenses | Write-Offs/Payments | Balance	at<br>September	27,	2003 |
| :--- | :--- | :--- | :--- |
| $4,824 | $4,656 | $(5,005) | $4,475 |

# Reclassifications

Certain	prior-period	amounts	have	been	reclassified	to	conform	with	the	current-period	presentation.

In	September	2001,	the	EITF	reached	a	consensus	on	EITF	Issue	No.	00-10,	Accounting	for	Shipping	and	Handling	Costs,	relating	to	the	accounting	for	shipping	and handling	costs	billed	to	customers.	In	accordance	with	EITF	00-10,	all	amounts	billed	to	a	customer	in	a	sale	transaction	related	to	shipping	and	handling,	if	any, represent	revenues	earning	for	the	goods	provided	and	should	be	classified	as	revenue	in	the	statement	of	operations.	The	Company	had	historically	accounted	for reimbursements	received	for	shipping	and	handling	costs	as	a	reduction	to	cost	of

service	and	other	revenue	in	the	statement	of	operations	to	offset	the	costs	incurred.	The	Company	adopted	EITF	00-10	in	financial	reporting	periods	beginning	in	fiscal 2002.	Accordingly,	amounts	for	2001	were	reclassified	in	2002	to	conform	to	the	current	presentation.	During	the	years	ended	September	27,	2003,	September	28,	2002 and	September	29,	2001,	the	amounts	billed	to	customers	totaled	$1,549,	$1,412,	and	$1,705,	respectively,	which	has	been	reflected	as	service	and	other	revenues	and cost	of	service	and	other	revenues	in	accordance	with	EITF	00-10	in	the	accompanying	statements	of	operations	for	all	periods	presented.

During	2002,	the	Company	began	to	separately	report	Service	and	Other	Revenue	from	Product	Sales	and	to	separately	report	Cost	of	Service	and	Other	Revenue	from Cost	of	Product	Sales.	In	addition,	in	2002,	the	Company	began	reporting	certain	Selling	and	Marketing	Expenses	as	Costs	of	Service	and	Other	Revenue.	Amounts	for 2001	were	reclassified	in	2002	to	conform	with	the	current	presentation.	The	following	is	a	summary	of	reclassifications	made	in	2002	to	the	2001	financial	statements:

As	a	result	of	management's	decision	to	close	its	conventional	general	radiography	manufacturing	facility,	the	Company	reclassified	the	General	Radiography	business from	the	Mammography/General	Radiography	segment	into	a	separate	segment	in	2002.	The	segment	information	presented	in	Note	10	was	revised	in	2002	and	2001	to reflect	the	2002	presentation.	The	following	reconciles	previously	reported	segment	revenues	in	2001	to	the	information	presented	in	Note	10.

| Revenues: |  |
| :--- | :--- |
| Mammography | $59,943 |
| General\tRadiography | 27,590 |
| Shipping\tand\thandling\tfees | (1,063) |
| Mammography/General\tRadiography | $86,470 |

# Recently	Issued	Accounting	Policies

In	January	2003,	the	FASB	issued	Interpretation	No.	(FIN)	46,	Consolidation	of	Variable	Interest	Entities,	to	expand	upon	and	strengthen	accounting	guidance	that addresses	when	a	company	should	include	in	its	financial	statements	the	assets,	liabilities,	and	activities	of	another	entity.	Until	now,	a	company	generally	has	included another	entity	in	its	consolidated	financial	statements	only	if	it	controlled	the	entity	through	voting	interests.	FIN	46	changes	that	guidance	by	requiring	a	variable interest	entity,	as	defined,	to	be	consolidated	by	a	company	if	that	company	bears	the	majority	of	the	risk	of	loss	from	the	variable	interest	entity's	activities,	is	entitled	to receive	a	majority	of	the	variable-interest	entity's	residual	returns	or	both.	FIN	46	also	requires	disclosure	about	the	variable	interest	entities	that	a	company	is	not required	to	consolidate	but	in	which	it	has	a	significant	variable	interest.	The	consolidation	requirements	of	FIN	46	apply	immediately	to	variable	interest	entities	created after	January	31,	2003	and	to	older	entities	in	the	first	fiscal	year	or	interim	period	beginning	after	December	15,	2003.	Certain	of	the	disclosure	requirements	apply	in all	financial	statements	issued	after	January	31,	2003,	regardless	of	when	the	variable	interest	entity	was	established.	The	Company	does	not	believe	that	it	is	the	primary beneficiary	of	any	variable-interest	entities.	Accordingly,	the	Company	believes	the	adoption	of	FIN	46	should	not	have	a	material	impact	on	its	overall	financial position	or	results	of	operations.

In	April	2003,	the	FASB	issued	SFAS	No.	149,	Amendment	of	Statement	133	on	Derivative	Instruments	and	Hedging	Activities.	SFAS	No.	149	amends	and	clarifies financial	accounting	and	reporting	for	derivative	instruments,	including	certain	derivative	instruments	embedded	in	other	contracts	(collectively	referred	to	as derivatives)	and	for	hedging	activities	under	SFAS	No.	133,	Accounting	for	Derivative	Instruments	and	Hedging	Activities.	SFAS	No.	149	is	effective	for	contracts entered	into	or	modified	after

June	30,	2003,	and	for	hedging	relationships	designated	after	June	30,	2003.	Adoption	of	this	statement	did	not	have	an	impact	on	the	Company's	financial	position, results	of	operations	and	cash	flows.

In	May	2003,	the	FASB	issued	SFAS	No.	150,	Accounting	for	Certain	Financial	Instruments	with	Characteristics	of	both	Liabilities	and	Equity.	This	statement establishes	standards	for	how	an	issuer	classifies	and	measures	in	its	statement	of	financial	position	certain	financial	instruments	with	characteristics	of	both	liabilities and	equity.	In	accordance	with	the	standard,	a	financial	instrument	that	embodies	an	obligation	for	the	issuer	is	required	to	be	classified	as	a	liability	(or	an	asset	in	some circumstances).	SFAS	No.	150	is	effective	for	financial	instruments	entered	into	or	modified	after	May	31,	2003,	and	otherwise	is	effective	at	the	beginning	of	the	first interim	period	beginning	after	June	15,	2003.	The	adoption	of	SFAS	No.	150	did	not	have	any	impact	on	the	Company's	financial	statements.

# 3.	Acquisition	of	Trex	Medical	Systems	Corporation

On	September	15,	2000,	pursuant	to	an	Asset	Purchase	and	Sale	Agreement	between	Hologic,	Inc.	(Hologic)	and	Trex	Medical	Systems	Corporation	(Trex	Medical) (the	Purchase	Agreement),	dated	August	13,	2000,	Hologic	acquired	the	U.S.	business	assets	of	Trex	Medical	in	exchange	for	$30,000	in	cash	and	a	note	in	the	amount of	$25,000.	The	note	had	a	term	of	three	years,	bore	interest	at	a	rate	of	11.5%	per	annum	and	was	repaid	in	full	in	September	2002	with	the	proceeds	from	the Company's	sale/leaseback	transaction	(see	Note	2).	The	Company	recorded	interest	expense	related	to	this	note	payable	of	$2,638	and	$2,875	for	the	years	ended September	28,	2002	and	September	29,	2001,	respectively,	in	the	accompanying	consolidated	statements	of	operations.

# 3.	Acquisition	of	Trex	Medical	Systems	Corporation	(continued)

The	initial	aggregate	purchase	price	for	Trex	Medical	was	approximately	$56,000,	which	included	approximately	$1,000	related	to	acquisition	fees	and	expenses.	The purchase	price	was	subject	to	an	adjustment	based	upon	the	working	capital	position	of	the	business	as	of	September	15,	2000.	The	Trex	Medical	acquisition	was accounted	for	as	a	purchase	in	accordance	with	APB	Opinion	No.	16,	Business	Combinations,	and,	accordingly,	the	results	of	the	operations	of	Trex	Medical	are included	in	the	accompanying	consolidated	financial	statements	from	the	date	of	acquisition.	In	accordance	with	APB	Opinion	No.	16,	the	purchase	price	was	allocated to	the	acquired	assets	and	assumed	liabilities	of	Trex	Medical	based	on	their	fair	value.

In	connection	with	the	allocation	of	the	purchase	price	to	the	acquired	assets	and	assumed	liabilities	of	Trex	Medical	based	on	their	estimated	fair	value,	management determined	that	the	balance	of	certain	reserves	and	accruals	at	the	closing	date	were	not	sufficient	to	cover	the	estimated	economic	exposure.	Therefore,	the	Company increased	the	balance	of	the	applicable	reserves	and	accruals	to	reflect	management's	estimated	economic	exposure	through	charges	to	earnings	in	the	period	after acquisition	in	accordance	with	the	guidance	provided	under	Staff	Accounting	Bulleting	(SAB)	No.	100,	Restructuring	and	Impairment.	As	a	result,	in	the	period	the acquisition	occurred,	the	Company	recorded	pre-tax	charges	totaling	$6,800	to	increase	the	reserve	for	bad	debts,	warranty	accruals	and	other	liabilities.

In	June	2001,	an	independent	arbitrator	determined	that	adjustments	of	$2,839	in	addition	to	$119	of	adjustments	agreed	to	by	Thermo	Electron	Corporation	before submission	to	arbitration	were	required	to	the	closing	balance	sheet	submitted	by	Trex	Medical.	This	resulted	in	a	payment	of	approximately	$932	to	the	Company	as	an adjustment	to	the	purchase	price.	In	addition,	as	a	result	of	this	arbitration	settlement,	the	Company	evaluated	the	components	of	the	approximate	$2,900	of	adjustments and	determined	that	approximately	$2,100	of	reserves	and	accruals	provided	for	through	charges	to	earnings	in	the	fourth	quarter	of	fiscal	2000	should	have	been recorded	in	the	allocation	of	the	purchase	price	for	this	acquisition.	The	remaining	$700	related	to	items	that	were	recorded	in	the	original	purchase	price	allocation.

As	a	result	of	the	above	adjustments	and	other	purchase	accounting	adjustments	made	during	the	year,	the	Company's	results	for	the	year	ended	September	29,	2001 include	expense	reductions	totaling	$2,526	relating	to	the	purchase	price	reallocation	as	follows:

•$1,722	cost	of	product	sales	reduction	for	warranty	accrual	and	for	performance	upgrades	on	prior	sales;	and

•$376	selling	expense	reduction	for	accrued	sales	commissions	and	$428	general	and	administrative	expense	reduction	for	various	expense	accruals	and	bad	debt expense.

As	part	of	the	purchase	price	allocation,	intangible	assets	that	are	a	part	of	the	acquisition	were	identified	and	valued.	It	was	determined	that	technology	assets	and assembled	workforce	had	separately	identifiable	values.	As	a	result	of	this	identification	and	valuation	process,	the	Company	allocated	approximately	$5,000	of	the purchase	price	to	in-process	research	and	development	projects.	This	allocation	represented	the	estimated	fair	value	based	on	risk-adjusted	cash	flows	related	to	the incomplete	research	and	development	projects.	At	the	date	of	acquisition,	the	development	of	these	projects	had	not	yet	reached	technological	feasibility,	and	the research	and	development	in	progress	had	no	alternative	future	uses.	Accordingly,	these	costs	were	expensed	as	of	the	acquisition	date.

In	addition,	the	Company	allocated	approximately	$11,800	and	$3,000	to	developed	technology	and	assembled	workforce,	respectively.	Developed	technology represents	patented	and	unpatented	technology	and	know-how	related	to	the	Trex	X-ray	mammography,	breast	biopsy	and	radiography	systems.	Developed	technology is	being	amortized	over	a	period	of	10	years	at	approximately	$910	of	amortization	expense	per	year.	Assembled	workforce	is	the	presence	of	a	skilled	workforce	that	is knowledgeable	about	company	procedures	and	possesses	expertise	in	certain	fields	that	are	important	to	profitability	and	growth	of	a	company.	In	accordance	with	SFAS No.	142,	the	Company	reclassified	the	net	book	value	of	assembled	workforce	as	of	September	29,	2001	to	goodwill	and	ceased	amortization	at	the	beginning	of	fiscal 2002	(see	Note	2).

The	excess	of	the	purchase	price	over	the	fair	value	of	identifiable	intangible	and	tangible	net	assets,	as	of	September	30,	2000,	of	approximately	$4,420	was	allocated	to goodwill.	The	Company	early	adopted	SFAS	No.	142	in	the	first	quarter	of	fiscal	2002	and,	accordingly,	ceased	amortization	of	goodwill	(see	Note	2).	During	fiscal 2003,	goodwill	was	reduced	by	approximately	$179	for	the	reversal	of	excess	accruals	from	the	original	purchase	price	allocation.

The	aggregate	purchase	price	(after	the	adjustments	discussed	above)	of	$55,068	including	acquisition	costs	was	allocated	as	follows:

On	November	13,	2001,	the	Company	announced	they	would	be	closing	the	general	radiography	manufacturing	facility	in	Littleton,	Massachusetts,	that	the	Company had	acquired	from	Trex	Medical	and	that	it	would	relocate	certain	of	its	product	lines	and	sales	and	support	personnel	to	its	corporate	headquarters	in	Bedford, Massachusetts.	The	Company	accrued	costs	of	approximately	$3,500	related	to	the	closing	as	part	of	the	final	purchase	price	allocation	in	the	fourth	quarter	of	fiscal 2001.	These	costs	included	amounts	for	lease	abandonment,	as	well	as	for	the	write-off	of	certain	fixed	assets	and	accounts	receivable.	The	Company	incurred	an additional	restructuring	charge	of	approximately	$961	in	fiscal	2002	primarily	comprised	of	severance	costs	related	to	the	termination	of	employees	at	the	Littleton location.

# 4.	Credit	Facilities

The	Company	maintains	an	unsecured	line	of	credit	with	a	bank	for	the	equivalent	of	$3,000,	which	bears	interest	at	the	Europe	Interbank	Offered	Rate	(2.13%	at September	27,	2003)	plus	1.50%.	There	were	no	amounts	outstanding	during	2003.	The	borrowings	under	this	line	are	primarily	used	by	the	Company's	European subsidiaries	to	settle	intercompany	sales	and	are	denominated	in	the	respective	local	currencies	of	its	European	subsidiaries.	The	line	of	credit	may	be	canceled	by	the bank	with	30	days	notice.	Interest	expense	on	this	line	of	credit	of	approximately	$66	and	$95	has	been	included	in	interest/other	expenses	in	the	accompanying consolidated	statements	of	operations	for	2002	and	2001,	respectively.	No	interest	expense	was	incurred	for	2003	on	this	line	of	credit.

# 4.	Credit	Facilities	(continued)

On	September	21,	2001,	the	Company	signed	a	Loan	and	Security	Agreement	with	Wells	Fargo	Foothill,	Inc.,	as	amended	(the	Foothill	Agreement).	The	Foothill Agreement	provides	for	a	term	loan	in	the	amount	of	$2,360,	payable	monthly	in	equal	installments	over	five	years.	The	term	loan	accrues	interest	daily	at	an	annual	rate equal	to	the	prime	rate	(4.00%	at	September	27,	2003)	plus	1.00%.	As	of	September	27,	2003,	there	was	$1,416	outstanding	under	the	Foothill	Agreement.	The Company	also	has	the	ability	to	issue	letters	of	credit	under	the	Foothill	Agreement.	The	Company	must	pay	a	fee	related	to	any	letters	of	credit	equal	to	1%	per	annum on	the	daily	balance	of	the	undrawn	amount	of	all	outstanding	letters	of	credit.

In	addition,	the	Foothill	Agreement	allows	for	revolver	advances	equal	to	the	lesser	of	(i)	the	Maximum	Revolver	Amount	($20,000	less	amounts	outstanding	related	to letters	of	credit)	or	(ii)	the	Borrowing	Base,	as	defined,	less	the	letter	of	credit	usage.	The	revolver	advances	accrue	interest	daily	at	an	annual	rate	equal	to	the	prime	rate plus	0.25%.	The	Company	must	pay	monthly	an	Unused	Line	Fee	in	an	amount	equal	to	0.3%	times	the	result	of	(i)	the	maximum	revolver	amount	less	the	sum	of	the average	daily	balance	of	advances,	as	defined,	during	the	preceding	month	plus	(ii)	the	average	daily	balance	of	the	letter	of	credit	usage,	as	defined,	during	the	preceding month.

The	Company's	ability	to	borrow	under	such	line	of	credit	is	conditional	upon	the	Company's	compliance	with	certain	financial	and	non-financial	covenants.	The	line	of credit	is	collateralized	by	substantially	all	assets	of	the	Company,	excluding	real	estate,	and	expires	on	September	21,	2005.	The	Company	was	in	compliance	with	all covenants	as	of	September	27,	2003.

The	Company	provides	for	income	taxes	under	the	liability	method	in	accordance	with	SFAS	No.	109,	Accounting	for	Income	Taxes.

# 5.	Income	Taxes	(continued)

The	provision	(benefit)	for	income	taxes	in	the	accompanying	consolidated	statements	of	operations	consists	of	the	following:

|  | September	27,<br>2003 | September	28,<br>2002 | September	29,<br>2001 |
| :--- | :--- | :--- | :--- |
| Federal: |  |  |  |
| Current | $— | $(13,527) | $— |
| Deferred | — | 13,000 | — |
|  | — | (527) | — |
| State: |  |  |  |
| Current | 150 | 150 | 150 |
| Deferred | — | (84) | — |
|  | 150 | 66 | 150 |
| Foreign: |  |  |  |
| Current | 26 | 32 | 19 |
|  | $176 | $(429) | $169 |

A	reconciliation	of	the	federal	statutory	rate	to	the	Company's	effective	tax	rate	is	as	follows:

|  | September	27,<br>2003 | September	28,<br>2002 | September	29,<br>2001 |
| :--- | :--- | :--- | :--- |
| Income\ttax\tprovision\tat\tfederal\tstatutory\trate | 35.0% | (35.0)% | (35.0)% |
| Increase\t(decrease)\tin\ttax\tresulting\tfrom: |  |  |  |
| Change\tin\tvaluation\tallowance | (32.2) | (28.5) | 40.6 |
| State\ttax\tprovision\t(benefit),\tnet\tof\tfederal\tbenefit | 4.6 | 43.1 | (1.2) |
| Research\tand\tdevelopment\ttax\tcredit | (15.3) | (199.7) | (2.5) |
| Nondeductible\texpenses | 13.3 | 48.7 | — |
| Other | — | — | (1.1) |
|  | 5.4% | (171.4)% | 0.8% |

The	components	of	domestic	and	foreign	loss	before	the	provision	(benefit)	for	income	taxes	are	as	follows:

|  | September	27,<br>2003 | September	28,<br>2002 | September	29,<br>2001 |
| :--- | :--- | :--- | :--- |
| Domestic | $2,204 | $1,327 | $(20,561) |
| Foreign | 1,061 | (1,577) | (120) |
|  | $3,265 | $(250) | $(20,681) |

The	components	of	the	net	deferred	tax	asset	recognized	in	the	accompanying	consolidated	balance	sheets	are	as	follows:

|  | September	27,<br>2003 | September	28,<br>2002 |
| :--- | :--- | :--- |
| Deferred\ttax\tassets | $11,815 | $10,952 |
| Valuation\tallowance | (8,215) | (7,352) |
|  | $3,600 | $3,600 |

The	Company	generated	significant	tax	loss	carryforwards	during	fiscal	2001	and	2000,	which	may	be	carried	forward	for	19	and	20	years,	respectively.	Under	SFAS No.	109,	the	Company	can	only	recognize	a	deferred	tax	asset	for	future	benefit	of	its	tax	loss	carryforward	to	the	extent	that	it	is	"more	likely	than	not"	that	these	assets will	be	realized.	In	determining	the	realizability	of	these	assets,	the	Company	considered	numerous	factors,	including	historical	profitability,	estimated	future	taxable income	and	the	industry	in	which	it	operates.	A	portion	of	the	deferred	tax	assets	relates	to	the	excess	benefit	of	stock	options,	and	as	such,	will	be	realized	as	an	increase in	stockholders'	equity	in	future	periods.

During	fiscal	2002,	as	a	result	of	the	Economic	Stimulus	Bill	signed	into	law	in	March	2002,	the	Company	filed	carryback	claims	of	approximately	$13,800.	Of	this amount,	$12,208	has	been	received	by	the	Company	and	$1,772	is	included	in	other	current	assets	in	the	accompanying	balance	sheet	at	September	27,	2003.

The	Company	has	recorded	an	increase	in	the	valuation	allowance	against	a	portion	of	its	remaining	potential	deferred	tax	assets.	The	valuation	allowance	primarily relates	to	the	net	losses	generated	in	fiscal	2001	and	2000,	which	the	Company	can	only	realize	through	the	generation	of	future	taxable	income	and	certain	deferred	tax assets	in	foreign	jurisdictions,	for	which	realization	is	uncertain.	The	Company	believes	that	its	net	deferred	tax	asset	as	of	September	27,	2003	will	be	realizable	in	the next	12-24	months.

The	approximate	income	tax	effect	of	each	type	of	temporary	difference	and	carryforward	before	allocation	of	the	valuation	allowance	is	approximately	as	follows:

|  | September	27,<br>2003 | September	28,<br>2002 |
| :--- | :--- | :--- |
| Net\toperating\tloss\tcarryforwards | $10,919 | $9,167 |
| Nondeductible\taccruals | 684 | 720 |
| Nondeductible\treserves | 2,497 | 3,883 |
| Other\ttemporary\tdifferences | (3,910) | (3,935) |
| Research\tcredit | 1,509 | 1,008 |
| Deferred\trevenue | 116 | 109 |
|  | $11,815 | $10,952 |

The	following	table	summarizes	the	expiration	dates	of	the	net	operating	loss	and	R&D	credit	carryforwards:

|  | 2019 | 2020 | 2021 | 2022 | 2023 | Total |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| Net\tOperating\tLoss | $356 | $10,431 | $10,149 | $5,069 | $3,545 | $29,550 |
| R&amp;D\tCredit | $— | $— | $508 | $500 | $500 | $1,508 |

# Common	Stock	Offering

On	December	12,	2001,	the	Company	completed	an	offering	of	3,000	shares	of	common	stock	for	net	proceeds	of	$24,780.

# 6.	Common	Stock	(continued)

# Stock	Option	Plans

The	Company's	1986	Combination	Stock	Option	Plan	(the	1986	Plan)	is	administered	by	the	Board	of	Directors.	Under	the	terms	of	the	1986	Plan,	the	Company	granted employees	either	incentive	stock	options	or	nonqualified	stock	options	to	purchase	shares	of	the	Company's	common	stock	at	a	price	not	less	than	fair	market	value	at the	date	of	grant.	In	addition,	the	Company	granted	nonqualified	options	to	other	participants.

During	fiscal	1996,	the	1986	Plan	was	terminated.	Options	granted	under	the	1986	Plan	vest	over	a	five-year	period	and	are	exercisable	at	varying	dates.

The	Company's	1994	Stock	Option	Plan	(the	1994	Plan)	and	the	1995	Stock	Option	Plan	(the	1995	Plan),	both	of	which	were	originally	adopted	by	Fluoroscan	and assumed	by	the	Company	upon	its	combination	with	Fluoroscan,	are	administered	by	the	Board	of	Directors.	As	of	September	27,	2003,	there	were	options	to	purchase 21	shares	of	the	Company's	common	stock	outstanding	under	these	plans.	The	Company	does	not	intend	to	grant	any	additional	options	under	these	plans.

In	June	1995,	the	Board	of	Directors	adopted	the	1995	Combination	Stock	Option	Plan	(the	1995	Combination	Plan),	pursuant	to	which	the	Company	is	authorized	to issue	1,100	options	to	purchase	shares	of	common	stock.	Under	the	terms	of	the	1995	Combination	Plan,	the	Company	may	grant	employees	either	incentive	stock options	or	nonqualified	stock	options	to	purchase	shares	of	the	Company's	common	stock	at	a	price	not	less	than	the	fair	market	value	at	the	date	of	grant.	In	addition, the	Company	may	grant	nonqualified	options	to	other	participants,	such	as	consultants	and	advisors.	As	of	September	27,	2003,	the	Company	had	57	shares	available for	future	grant	under	this	plan.

The	Company's	1990	Nonemployee	Director	Stock	Option	Plan	(the	Directors'	Plan)	allowed	for	eligible	directors	to	receive	options	to	purchase	10	shares	of	common stock	upon	election	as	a	director.	The	options	vest	ratably	over	a	five-year	period.	In	addition,	eligible	directors	were	entitled	to	annual	option	grants	to	purchase	eight shares	of	common	stock,	which	vest	after	six	months.	Option	grants	under	the	Directors'	Plan	were	made	at	not	less	than	fair	market	value	on	the	date	of	grant.	The Company	reserved	200	shares	of	common	stock	for	issuance	under	the	Directors'	Plan.	As	of	September	27,	2003,	the	Company	had	no	shares	available	for	future	grant.

In	May	1997,	the	Board	of	Directors	adopted	the	1997	Employee	Equity	Incentive	Plan	(the	1997	Plan),	pursuant	to	which	the	Company	is	authorized	to	issue	1,100 shares	of	common	stock.	Under	the	terms	of	the	1997	Plan,	the	Company	may	grant	employees,	consultants	and	advisors	who	are	not	executive	officers	or	directors	of the	Company	either	nonqualified	stock	options,	stock	appreciation	rights,	performance	shares,	restricted	stock,	or	stock	units.	As	of	September	27,	2003,	the	Company had	72	shares	available	for	future	grant	under	this	plan.

In	March	1999,	the	Board	of	Directors	adopted	the	1999	Equity	Incentive	Plan	(the	1999	Plan),	pursuant	to	which	the	Company	is	authorized	to	issue	300	shares,	plus	an annual	increase,	as	defined,	on	the	first	day	of	each	fiscal	year	following	the	adoption	of	the	1999	Plan.	Effective	September	29,	2002,	the	Board	of	Directors	increased the	number	of	shares	available	for	issuance	under	the	1999	Plan	from	1,440	to	1,840.	Under	the	terms	of	the	1999	Plan,	the	Company	may	grant	employees	either incentive	stock	options	or	nonqualified	stock	options.	In	addition,	the	Company	may	grant	non-employee	directors	nonqualified	stock	options.	The	exercise	price	of	the options	granted	under	this	plan	may	not	be	less	than	the	fair	market	value	of	the	Company's	stock	on	the	date	on	which	the	option	was	granted.	As	of	September	27, 2003,	the	Company	had	770	shares	available	for	future	grant	under	this	plan.

In	April	2001,	the	Board	of	Directors	adopted	the	2000	Acquisition	Equity	Incentive	Plan	(the	2000	Plan),	pursuant	to	which	the	Company	is	authorized	to	issue	1,000 shares	of	common	stock.	Under	the	terms	of	the	2000	Plan,	the	Company	may	grant	employees,	consultants	and	advisors	of	newly	acquired	businesses	either nonqualified	stock	options,	stock	appreciation	rights,	performance	shares	or	restricted	stock.	As	of	September	27,	2003,	the	Company	had	463	shares	available	for future	grant	under	this	plan.

The	following	table	summarizes	all	stock	option	activity	under	all	of	the	plans	for	the	three	years	in	the	period	ended	September	27,	2003:

|  | of<br>Shares | Exercise	Price<br>per	Share | Weighted	Average<br>Exercise	Price |
| :--- | :--- | :--- | :--- |
| Outstanding\tat\tSeptember\t30,\t2000 | 2,712 | $1.81–44.25 | 8.63 |
| Granted | 1,537 | 4.00–7.19 | 5.38 |
| Terminated | (753) | 1.94–14.94 | 7.20 |
| Exercised | (129) | 1.94–6.81 | 3.68 |
| Outstanding\tat\tSeptember\t29,\t2001 | 3,367 | 1.81–44.25 | 7.65 |
| Granted | 1,324 | 5.05–17.00 | 9.25 |
| Terminated | (380) | 3.50–28.13 | 7.80 |
| Exercised | (595) | 1.81–13.25 | 7.07 |
| Outstanding\tat\tSeptember\t28,\t2002 | 3,716 | 1.81–44.25 | 8.29 |
| Granted | 257 | 7.23–16.72 | 10.48 |
| Terminated | (275) | 2.81–16.70 | 8.04 |
| Exercised | (470) | 1.88–13.13 | 5.67 |
| Outstanding\tat\tSeptember\t27,\t2003 | 3,228 | $1.81–44.25 | $8.86 |
| Exercisable\tat\tSeptember\t27,\t2003 | 2,019 | $1.81–44.25 | $8.92 |
| Exercisable\tat\tSeptember\t28,\t2002 | 1,563 | $1.81–44.25 | $8.82 |
| Exercisable\tat\tSeptember\t29,\t2001 | 1,555 | $1.81–44.25 | $9.29 |

The	range	of	exercise	prices	for	options	outstanding	and	options	exercisable	at	September	27,	2003	are	as	follows:

| Range	of	Exercise<br>Price | Options<br>Outstanding | Weighted	Average<br>Remaining<br>Contractual	Life<br>(Years) | Weighted<br>Average<br>Exercise<br>Price | Options<br>Exercisable | Weighted<br>Average<br>Exercise<br>Price |
| :--- | :--- | :--- | :--- | :--- | :--- |
| $1.81–$3.94 | 93 | 5.72 | $3.83 | 56 | $3.76 |
| $4.00–$5.00 | 373 | 7.11 | 4.96 | 308 | 4.98 |
| $5.05–$5.78 | 437 | 7.63 | 5.58 | 281 | 5.49 |
| $5.87–$7.68 | 413 | 6.78 | 6.88 | 218 | 6.74 |
| $7.69–$8.88 | 425 | 4.29 | 8.29 | 388 | 8.25 |
| $9.00–$9.50 | 482 | 8.93 | 9.49 | 128 | 9.47 |
| $9.55–$10.26 | 376 | 8.20 | 10.22 | 201 | 10.25 |
| $10.50–$13.13 | 440 | 6.09 | 11.90 | 308 | 11.90 |
| $13.15–$32.59 | 188 | 5.14 | 20.80 | 130 | 23.78 |
| $44.25 | 1 | 2.75 | 44.25 | 1 | 44.25 |
| $1.81–$44.25 | 3,228 | 6.87 | $8.86 | 2,019 | $8.92 |

# Employee	Stock	Purchase	Plan

The	Company	has	an	Employee	Stock	Purchase	Plan	(the	ESP	Plan)	in	compliance	with	Section	423	of	the	Internal	Revenue	Code.	Employees	who	have	completed three	consecutive	months,	or	two	years,	whether	or	not	consecutive,	of	employment	with	the	Company	or	any	of	its	participating	subsidiaries	are	eligible	to	participate	in the	ESP	Plan.	The	ESP	Plan	allows	participants	to	purchase	common	stock	of	the	Company	at	85%	of	the	fair	market	value,	as	defined.	During	the	fiscal	years	ended September	27,	2003,	September	28,	2002	and	September	29,	2001,	the	Company	issued	37,	56	and	100	shares,	respectively	under	the	ESP	Plan.	At	September	27, 2003,	there	are	136	shares	available	for	purchase	under	the	ESP	Plan.

# Rights	Agreement

On	September	17,	2002,	the	Board	of	Directors	adopted	a	new	shareholder	rights	plan	(the	2002	Rights	Plan)	to	replace	the	December	1992	Plan	when	it	expired	on December	31,	2002.	In	addition	to	certain	other	modifications,	the	2002	Rights	Plan	uses	preferred	stock	purchase	rights	rather	than	common	stock	purchase	rights.	To effect	the	2002	Rights	Plan,	the	Board	of	Directors	declared	a	dividend	distribution	of	one	right	for	each	share	of	the	Company's	common	stock	outstanding	as	of	the close	of	business	on	December	31,	2002.	Each	right	entitles	the	registered	holder	to	purchase	one	one-thousandth	of	a	share	of	the	Company's	Series	A	Junior Participating	Preferred	Stock	at	a	purchase	price	of	$60.00.	The	rights	will	be	exercisable	if	a	person	or	group	acquires	beneficial	ownership	of	15%	or	more	of	the Company's	common	stock	or	announces	a	tender	or	exchange	offer	for	15%	or	more	of	the	Company's	common	stock.	At	such	time,	each	holder	of	a	right	(other	than the	15%	holder)	will	thereafter	have	a	right	to	purchase,	upon	payment	of	the	purchase	price	of	the	right,	that	number	of	shares	of	the	Company's	common	stock,	which have	a	market	value	of	twice	the	purchase	price	of	the	right.	The	2002	Rights	Plan	is	designed	to	deter	coercive	or	unfair	takeover	tactics	and	to	ensure	that	all	of	the Company's	shareholders	receive	fair	and	equal	treatment	in	the	event	of	an	unsolicited	attempt	to	acquire	the	Company.

The	Company	has	a	qualified	profit	sharing	plan	covering	substantially	all	of	its	employees.	Contributions	to	the	plan	are	at	the	discretion	of	the	Company's	Board	of Directors.	The	Company	has	recorded	approximately	$636,	$710,	and	$849	as	a	provision	for	the	profit	sharing	contribution	for	fiscal	2003,	2002	and	2001,

respectively.	During	2002,	the	Company	paid	the	2001	profit	sharing	contribution	through	issuance	of	its	common	stock.

# 8.	Related	Party	Transactions

# Note	Receivable	from	Officer

In	fiscal	2000	and	2001,	the	Company	loaned	an	officer	an	aggregate	of	$500,	which	is	required	to	be	repaid	quarterly	through	April	2006.	In	the	event	of	a	change	in control,	as	defined,	the	amounts	outstanding	will	be	forgiven.	The	note	is	unsecured	and	bears	interest	at	7%	per	annum.

# 8.	Related	Party	Transactions	(continued)

In	December	2002,	the	Compensation	Committee	of	the	Board	of	Directors	approved	a	special	bonus	program	to	provide	the	officer	with	the	funds	necessary	to	pay	the quarterly	installments	due	under	the	loan.	Under	the	special	bonus	program,	for	so	long	as	the	officer	remains	an	officer	of	the	Company	and	there	are	amounts remaining	to	be	repaid	under	the	loan,	the	Company	will	pay	the	officer	a	special	quarterly	bonus	equal	to	the	amount	due	under	the	loan,	including	interest	due,	plus	an additional	payment	equal	to	the	taxes	due	as	a	result	of	the	special	bonus	and	such	additional	payment,	such	that	the	net-after-tax	special	quarterly	bonus	to	be	received by	the	officer	will	equal	the	principal	and	interest	then	due	under	the	loan.	During	the	year	ended	September	27,	2003	the	company	recognized	$371	in	bonus	expense	in connection	with	this	program.

# 9.	Commitments

# Operating	Leases

The	Company	conducts	its	operations	in	leased	facilities	under	operating	lease	agreements	that	expire	through	fiscal	2022.	The	Company	leases	certain	equipment	under operating	lease	agreements	that	expire	through	fiscal	2007.

In	September	2002,	the	Company	completed	a	sale/leaseback	transaction	of	its	headquarters	and	manufacturing	facility	located	in	Bedford,	Massachusetts,	and	its manufacturing	facility	in	Danbury,	Connecticut.	The	transaction	resulted	in	net	proceeds	to	the	Company	of	$31.4	million.	The	new	lease	for	these	facilities,	including the	associated	land,	has	a	term	of	20	years,	with	four	five-year	renewal	terms,	which	the	Company	may	exercise	at	its	option.	The	basic	rent	for	the	facilities	is	$3.2 million	per	year,	which	is	subject	to	adjustment	for	increases	in	the	Consumer	price	index.	In	addition,	the	Company	is	required	to	maintain	the	facilities	during	the	term of	the	lease	and	to	pay	all	taxes,	insurance,	utilities	and	other	costs	associated	with	those	facilities.	Of	the	$31.4	million	in	net	proceeds	received	from	this	transaction, the	Company	used	$26.3	million	to	immediately	repay	the	Trex	Medical	$25.0	million	note	payable	plus	accrued	interest	of	$1.3	million.	Under	the	lease,	the	Company makes	customary	representations	and	warranties	and	agrees	to	certain	financial	covenants	and	indemnities.	In	the	event	the	Company	defaults	on	the	lease,	the	landlord may	terminate	the	lease,	accelerate	payments	and	collect	liquidated	damages.	As	of	the	end	of	fiscal	2003,	the	Company	was	not	in	default	of	any	covenants	contained	in the	lease.

# 9.	Commitments	(continued)

Future	minimum	lease	payments	under	all	the	Company's	operating	leases	are	approximately	as	follows:

| Fiscal	Years	Ending | Amount |
| :--- | :--- |
| September\t25,\t2004 | $4,371 |
| September\t24,\t2005 | 4,370 |
| September\t30,\t2006 | 3,790 |
| September\t25,\t2007 | 3,320 |
| September\t27,\t2008 | 3,161 |
| Thereafter | 43,922 |

# 10.	Business	Segments	and	Geographic	Information

The	Company	reports	segment	information	in	accordance	with	SFAS	No.	131,	Disclosures	about	Segments	of	an	Enterprise	and	Related	Information.	Operating segments	are	identified	as	components	of	an	enterprise	about	which	separate,	discrete	financial	information	is	available	for	evaluation	by	the	chief	operating	decision maker,	or	decision	making	group,	in	making	decisions	how	to	allocate	resources	and	assess	performance.	The	Company's	chief	decision-maker,	as	defined	under	SFAS No.	131,	is	the	chief	executive	officer.	To	date,	the	Company	has	viewed	its	operations	and	manages	its	business	as	five	principal	operating	segments:	the	manufacture and	sale	of	Osteoporosis	Assessment	products,	Mammography	products,	Digital	Imaging	products,	Mini-C	Arm	Imaging	products	and	General	Radiography	products.

As	a	result	of	the	Company's	recent	implementation	of	a	companywide	integrated	software	application,	identifiable	assets	for	the	five	principal	operating	segments	only consist	of	inventories.	The	Company	has	presented	all	other	assets,	liabilities	and	stockholders'	equity	as	Corporate	Assets.	Prior	periods	have	been	restated	to	conform to	this	presentation.	Intersegment	sales	and	transfers	are	not	significant.

# 10.	Business	Segments	and	Geographic	Information	(continued)

The	accounting	policies	of	the	segments	are	the	same	as	those	described	in	the	summary	of	significant	accounting	policies.	The	Company	evaluates	performance	based on	revenues	and	operating	income	(loss).	Segment	information	for	fiscal	years	2003,	2002	and	2001	is	as	follows:

|  | September	27,<br>2003 | September	28,<br>2002 | September	29,<br>2001 |
| :--- | :--- | :--- | :--- |
| Total\trevenues: |  |  |  |
| Osteoporosis\tAssessment | $71,081 | $63,544 | $66,155 |
| Mammography | 86,473 | 75,039 | 59,943 |
| Digital\tImaging | 24,741 | 23,660 | 11,780 |
| Mini\tC-Arm\tImaging | 16,726 | 17,030 | 14,728 |
| General\tradiography | 5,014 | 10,919 | 27,590 |
|  | $204,035 | $190,192 | $180,196 |
| Operating\tincome\t(loss): |  |  |  |
| Osteoporosis\tAssessment | $10,236 | $6,450 | $7,357 |
| Mammography | 4,331 | 4,174 | 909 |
| Digital\tImaging | (14,624) | (10,271) | (21,252) |
| Mini\tC-Arm\tImaging | 2,197 | 3,509 | 683 |
| General\tradiography | 885 | (1,705) | (6,503) |
|  | $3,025 | $2,157 | $(18,806) |
| Net\tincome\t(loss): |  |  |  |
| Osteoporosis\tAssessment | $10,109 | $7,079 | $8,157 |
| Mammography | 4,382 | 1,508 | (2,066) |
| Digital\tImaging | (14,690) | (10,234) | (21,374) |
| Mini\tC-Arm\tImaging | 2,197 | 3,509 | 972 |
| General\tradiography | 884 | (1,683) | (6,539) |
|  | $2,882 | $179 | $(20,850) |

|  | September	27,<br>2003 | September	28,<br>2002 | September	29,<br>2001 |
| :--- | :--- | :--- | :--- |
| Depreciation\tand\tamortization: |  |  |  |
| Osteoporosis\tAssessment | $3,294 | $3,229 | $3,422 |
| Mammography | 2,375 | 1,795 | 3,143 |
| Digital\tImaging | 1,736 | 2,376 | 1,499 |
| Mini\tC-Arm\tImaging | — | 76 | 173 |
| General\tradiography | — | — | 498 |
|  | $7,405 | $7,476 | $8,735 |
| Capital\texpenditures,\tnet: |  |  |  |
| Osteoporosis\tAssessment | $4,421 | $3,121 | $1,279 |
| Mammography | 1,908 | 1,550 | 1,168 |
| Digital\tImaging | 1,817 | 1,467 | 1,744 |
| Mini\tC-Arm\tImaging | — | — | 162 |
| General\tradiography | — | — | (23) |
|  | $8,146 | $6,138 | $4,330 |
| Identifiable\tassets: |  |  |  |
| Osteoporosis\tAssessment | $9,939 | $10,370 | $13,093 |
| Mammography | 16,810 | 12,561 | 11,555 |
| Digital\tImaging | 10,096 | 9,405 | 5,513 |
| Mini\tC-Arm\tImaging | 4,258 | 3,181 | 3,237 |
| General\tradiography | 2,324 | 2,338 | 5,887 |
| Corporate | 145,176 | 146,292 | 155,578 |
|  | $188,603 | $184,147 | $194,863 |

Export	sales	from	the	United	States	to	unaffiliated	customers,	primarily	in	Europe,	Asia	and	Latin	America	during	fiscal	2003,	2002	and	2001	totaled	approximately $49,887,	$29,405	and	$38,177,	respectively.

Transfers	between	the	Company	and	its	European	subsidiaries	generally	are	recorded	at	amounts	similar	to	the	prices	paid	by	unaffiliated	foreign	dealers.	All intercompany	profit	is	eliminated	in	consolidation.

Export	product	sales,	including	sales	to	European	subsidiaries,	as	a	percentage	of	total	product	sales	are	as	follows:

|  | September	27, | September	28, | September	29, |
| :--- | :--- | :--- | :--- |
|  | 2003 | 2002 | 2001 |
| Europe | 17% | 9% | 14% |
| Asia | 13 | 8 | 8 |
| All\tothers | 2 | 3 | 6 |
|  | 32% | 20% | 28% |

# 11.	Accrued	Expenses

Accrued	expenses	consist	of	the	following:

|  | September	27,<br>2003 | September	28,<br>2002 |
| :--- | :--- | :--- |
| Accrued\tpayroll\tand\temployee\tbenefits | $4,578 | $4,282 |
| Accrued\tcommissions | 3,338 | 3,756 |
| Accrued\tincome\ttaxes | 1,555 | 1,481 |
| Accrued\twarranty | 4,475 | 4,824 |
| Other\taccrued\texpenses | 3,441 | 4,464 |
|  | $17,387 | $18,807 |

# 12.	Litigation

On	August	9,	2001,	the	Company	and	Fleet	Business	Credit,	LLC	(Fleet)	reached	an	agreement	to	settle	the	litigation	between	the	parties,	which	had	originated	during fiscal	1999,	upon	the	termination	of	a	product	financing	agreement.	Under	the	terms	of	the	$3,050	settlement,	Hologic	made	a	cash	payment	of	$1,500	and	issued	a	note payable	to	Fleet	for	$1,550	payable	in	full	on	August	10,	2004	and	bearing	interest	at	a	rate	of	prime	(4.00%	at	September	27,	2003)	plus	1%.	As	of	September	27, 2003,	there	was	approximately	$604	outstanding	on	this	note.

Under	the	terms	of	the	Master	Product	Financing	Agreement,	the	Company	was	contingently	liable	for	a	certain	amount	per	system	sold	under	the	agreement.	The Company	recorded	the	amount	for	which	it	was	contingently	liable	as	deferred	revenue.	As	a	result	of	the	settlement,	the	Company	recognized	the	amount	deferred	in excess	of	the	settlement	totaling	$2,147	as	revenue	in	the	third	quarter	of	2001.	In	addition,	the	Company	reversed	$500	of	related	warranty	reserves	that	were	no	longer necessary	through	a	reduction	of	cost	of	product	sales	during	the	same	period.

In	connection	with	the	acquisition	of	the	U.S.	assets	of	Trex	Medical,	the	Company	assumed	the	liability	for	a	lawsuit	filed	by	Fischer	Imaging	against	Trex	Medical alleging	that	the	Lorad	prone	biopsy	system	infringes	upon	two	Fischer	Imaging	patents,	subject	to	indemnification	from	Trex	Medical	and	its	parent,	Thermo	Electron Corporation,	for	any	damages	and	related	costs,	including	attorneys'	fees,	up	to	the	adjusted	purchase	price	for	the	Trex	Medical	assets.	In	June	2002,	Trex	Medical	and Fischer	Imaging	reached	a	settlement	in	this	lawsuit.	Under	the	settlement,	Fischer	Imaging	dismissed	all	actions	against	the	Company,	the	Company	retained	the	right to	continue	to	sell	this	product,	and	the	Company	is	not	required	to	pay	any	damages	or	ongoing	royalties.

In	the	ordinary	course	of	business,	the	Company	is	party	to	various	types	of	litigation.	The	Company	believes	it	has	meritorious	defenses	to	all	claims,	and,	in	its opinion,	all	litigation	currently	pending	or	threatened	will	not	reasonably	be	likely	to	have	a	material	effect	on	the	Company's	financial	condition	or	results	of operations.

# 13.	Restructuring	and	Relocation	Charges

In	fiscal	2001,	the	Company	incurred	a	restructuring	charge	of	$1,018	in	accordance	with	EITF	94-3,	Liability	Recognition	for	Certain	Employee	Termination	Benefits and	Other	Costs	to	exit	an	Activity	(including	Certain	Costs	Incurred	in	a	Restructuring)	and	SAB	100.	The	restructuring	charge	included	severance-related	costs associated	with	workforce	reductions	of	approximately	102	persons	across	all	functional	areas.	In	addition,	the	Company	recorded	$500	of	moving	and	other	costs incurred	to	move	the	Fluoroscan	operations	to	the	corporate	headquarters	from	Northbrook,	Illinois.

During	the	first	quarter	of	fiscal	2002,	the	Company	announced	the	finalization	of	an	exit	strategy	for	the	Hologic	Systems	Division.	As	part	of	this	exit	strategy,	the Company	closed	its	conventional	general	radiography	manufacturing	facility	in	Littleton,	Massachusetts,	and	relocated	certain	of	its	product	lines	and	sales	and	support personnel	to	the	corporate	headquarters	in	Bedford,	Massachusetts.	The	Company	accrued	costs	of	approximately	$3,500	related	to	the	closing	as	part	of	the	final	Trex Medical	purchase	price	allocation	in	the	fourth	quarter	of	fiscal	2001.	These	costs	included	amounts	for	lease	abandonment,	as	well	as	for	the	write-off	of	certain	fixed assets	and	accounts	receivable.	The	Company	commenced	the	closure	for	the	Littleton	manufacturing	facility	in	the	first	quarter	of	fiscal	2002	and	completed	the	closure in	January	2002.	The	Company	also	incurred	a	restructuring	charge	of	approximately	$806	in	the	first	quarter	of	fiscal	2002	that	primarily	comprised	severance	costs related	to	the	termination	of	80	employees	at	the	Littleton	facility.	In	addition,	the	Company	incurred	severance	costs	of	approximately	$561	and	$208	in	the	first	quarter of	2002	in	connection	with	the	closure	of	the	Company's	direct	sales	and	service	office	in	Paris,	France,	and	the	continued	reduction	of	Lorad's	workforce,	respectively. The	severance	charges	related	to	the	workforce	reductions	of	five	persons	in	France	and	20	persons	at	Lorad	and	were	across	all	functional	areas.

In	the	second	quarter	of	fiscal	2002,	the	Company	incurred	additional	severance	costs	of	approximately	$495	that	primarily	comprised	severance	costs	in	connection	with the	reduction	of	the	Company's	workforce	in	the	United	States	and	Europe	by	13	persons	across	all	functional	areas.

# 13.	Restructuring	and	Relocation	Charges	(continued)

The	following	table	summarizes	the	restructuring	activity	for	the	year	ended	September	27,	2003:

| Balance	at<br>September	28,	2002 | Charged	to<br>Costs	and	Expenses | Payments | Balance	at<br>September	27,	2003 |
| :--- | :--- | :--- | :--- |
| $107 | $— | $\t(78) | $29 |

# 14.	Quarterly	Statement	of	Operations	Information	(Unaudited)

The	following	table	presents	a	summary	of	quarterly	results	of	operations	for	2003,	2002	and	2001:

|  | As<br>Previously<br>Reported,<br>First<br>Quarter | Restated,<br>First<br>Quarter | As<br>Previously<br>Reported,<br>Second<br>Quarter | Restated,<br>Second<br>Quarter | As<br>Previously<br>Reported,<br>Third<br>Quarter | Restated,<br>Third<br>Quarter | Fourth<br>Quarter |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| Total\trevenue | $ 48,964 | $49,002 | $ 50,336 | $50,297 | $ 52,389 | $52,332 | $52,404 |
| Gross\tprofit | 17,757 | 17,795 | 18,351 | 18,312 | 18,537 | 18,480 | 18,993 |
| Net\t(loss)\tincome | (912) | (1,081) | 383 | 344 | 1,076 | 1,019 | 2,599 |
| Diluted\tnet\t(loss)\tincome\tper\tcommon\tand |  |  |  |  |  |  |  |
| common\tequivalent\tshare | (0.05) | (0.06) | 0.02 | 0.02 | 0.05 | 0.05 | 0.13 |

# 14.	Quarterly	Statement	of	Operations	Information	(Unaudited)	(continued)

|  | First<br>Quarter | Second<br>Quarter | Third<br>Quarter | Fourth<br>Quarter |
| :--- | :--- | :--- | :--- | :--- |
| Total\trevenue | $47,585 | $46,401 | $48,008 | $48,198 |
| Gross\tprofit | 17,669 | 18,028 | 18,148 | 17,971 |
| Net\t(loss)\tincome | (1,573) | 4,426 | 492 | (3,166) |
| Diluted\tnet\t(loss)\tincome\tper\tcommon\tand\tcommon\tequivalent\tshare | (0.10) | 0.22 | 0.02 | (0.15) |

|  | First<br>Quarter | Second<br>Quarter | Third<br>Quarter | Fourth<br>Quarter |
| :--- | :--- | :--- | :--- | :--- |
| Total\trevenue | $44,978 | $44,090 | $45,380 | $45,748 |
| Gross\tprofit | 12,907 | 14,099 | 18,212 | 15,532 |
| Net\tloss | (6,765) | (7,945) | (1,213) | (4,927) |
| Diluted\tnet\tloss\tper\tcommon\tand\tcommon\tequivalent\tshare | (0.44) | (0.51) | (0.08) | (0.32) |

The	information	above	for	2003	has	been	restated	to	reflect	the	adoption	by	the	Company	of	EITF	00-21,	and	the	reclassification	to	the	beginning	of	the	first	quarter	of 2003.	See	Note	2.

The	significant	decrease	in	the	net	loss	in	the	third	quarter	of	fiscal	2001	is	directly	attributable	to	the	settlement	of	the	litigation	with	Fleet	discussed	in	Note	12	and	the arbitration	settlement	related	to	the	Trex	Medical	acquisition	discussed	in	Note	3.

The	significant	increase	in	net	income	in	the	second	quarter	of	fiscal	2002	is	directly	attributable	to	$4,500	tax	benefit	as	a	result	of	the	signing	of	the	Economic	Stimulus Bill.

The	significant	decrease	in	net	income	in	the	fourth	quarter	of	fiscal	2002	is	directly	attributable	to	the	$3,900	tax	provision	recorded	to	reduce	our	net	deferred	tax	asset to	$3,600.

# 15.	Valuation	and	Qualifying	Accounts

|  | Balance<br>at<br>Beginning<br>of	Period | Charged<br>to	Costs<br>and<br>Expenses | Acquired<br>Reserves | Write-<br>offs/<br>Payments | Balance<br>at	End<br>of<br>Period |
| :--- | :--- | :--- | :--- | :--- | :--- |
| Accounts\tReceivable\tReserves\t(1) |  |  |  |  |  |
| Period\tEnded: |  |  |  |  |  |
| September\t27,\t2003 | $4,693 | $760 | $— | $(1,976) | $3,477 |
| September\t28,\t2002 | 4,923 | 742 | — | (972) | 4,693 |
| September\t29,\t2001 | 8,460 | 1,071 | (1,702) | (2,906) | 4,923 |
| Accrued\tAcquisition\tReserve |  |  |  |  |  |
| Period\tEnded: |  |  |  |  |  |
| September\t27,\t2003 | $907 | $— | $— | $(907) | $— |
| September\t28,\t2002 | 1,708 | — | — | (801) | 907 |
| September\t29,\t2001 | 2,000 | (1,708) | 1,416 | — | 1,708 |
| Restructuring\tAccrual |  |  |  |  |  |
| September\t27,\t2003 | $107 | $— | $— | $(78) | $29 |
| September\t28,\t2002 | 784 | 2,070 | — | (2,747) | 107 |
| September\t29,\t2001 | — | 1,018 | — | (234) | 784 |



Question: if all outstanding options warrants and rights were exercised what would be the total cash inflow?
Calculation:   shares_issued = 3227753
 price = 8.86
 cash_inflow = shares_issued * price
 answer = cash_inflow
Answer: 28597891.58