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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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FORM 10-Q/A(Amendment No. 1 to Form 10-Q)

(Mark One)

|/x/ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|--- | ---------------------------------------------------------------------------------------

For the quarterly period ended December 31, 2000

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

For the transition period from  to

Commission File Number: 1-10285

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4-D NEUROIMAGING(Exact name of registrant as specified in its charter)

California(State or other jurisdiction of incorporation or organization)

95-2647755(I.R.S. Employer Identification No.)9727 Pacific Heights Boulevard,
San Diego, California(Address of principal executive offices)

92121-3719(zip code)


(858) 453-6300Registrant's telephone number, including area code)

(Former
name, former address and formal fiscal year, if changed since last report)

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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. /x/ Yes  / / No

APPLICABLE
ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS

Indicate
by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to
the distribution of securities under a plan confirmed by a court. / / Yes  / / No

APPLICABLE
ONLY TO CORPORATE ISSUERS:

The
number of shares outstanding of the registrant's Common Stock, no par value, as of February 6, 2001 was 85,191,957 shares.

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PART I  FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

4-D NEUROIMAGING  CONSOLIDATED BALANCE SHEETS  (in thousands, except share data)

|                                                                                                   |                             | December 31,
2000 |          | September 30,
2000 |  
|-------------------------------------------------------------------------------------------------- | --------------------------- | ----------------- | -------- | ------------------ | -
|
|ASSETS                                                                                             |                             |                   |          |                    |  
|Cash and cash equivalents                                                                          |                             | $                 | 1,054    |                    | $
|Restricted cash                                                                                    |                             |                   | 312      |                    |  
|Accounts receivable, less allowance for doubtful accounts of $210                                  |                             |                   | 1,838    |                    |  
|Inventories                                                                                        |                             |                   | 7,511    |                    |  
|Prepaid expenses and other                                                                         |                             |                   | 989      |                    |  
|                                                                                                   |                             |                   |          |                    |  
|                                                                                                   | Total current assets        |                   |          | 11,704             |  
|Property and equipment, net                                                                        |                             |                   | 950      |                    |  
|Goodwill, net                                                                                      |                             |                   | 9,159    |                    |  
|Restricted cash                                                                                    |                             |                   | 313      |                    |  
|Deferred income taxes                                                                              |                             |                   | 511      |                    |  
|Other assets                                                                                       |                             |                   | 561      |                    |  
|                                                                                                   |                             |                   |          |                    |  
|                                                                                                   |                             | $                 | 23,198   |                    | $
|                                                                                                   |                             |                   |          |                    |  
|LIABILITIES AND SHAREHOLDERS' DEFICIT                                                              |                             |                   |          |                    |  
|Notes payable                                                                                      |                             | $                 | 13,035   |                    | $
|Accounts payable                                                                                   |                             |                   | 4,004    |                    |  
|Accrued liabilities                                                                                |                             |                   | 1,323    |                    |  
|Accrued salaries and employee benefits                                                             |                             |                   | 848      |                    |  
|Customer deposits                                                                                  |                             |                   | 6,337    |                    |  
|Deferred revenues                                                                                  |                             |                   | 262      |                    |  
|Current portion of royalty obligation                                                              |                             |                   | 312      |                    |  
|Current portion of capital lease obligations                                                       |                             |                   | 16       |                    |  
|                                                                                                   |                             |                   |          |                    |  
|                                                                                                   | Total current liabilities   |                   |          | 26,137             |  
|Royalty obligation, net of current portion                                                         |                             |                   | 1,488    |                    |  
|Deferred revenues                                                                                  |                             |                   | 89       |                    |  
|Capital lease obligations, net of current portion                                                  |                             |                   | 41       |                    |  
|                                                                                                   |                             |                   |          |                    |  
|                                                                                                   | Total liabilities           |                   |          | 27,755             |  
|                                                                                                   |                             |                   |          |                    |  
|COMMITMENTS AND CONTINGENCIES                                                                      |                             |                   |          |                    |  
|SHAREHOLDERS' DEFICIT                                                                              |                             |                   |          |                    |  
|Common stockno par value; 200,000,000 shares authorized; 84,975,008 shares issued and outstanding |                             |                   | 100,102  |                    |  
|Additional paid-in capital                                                                         |                             |                   | 3,008    |                    |  
|Accumulated deficit                                                                                |                             |                   | (107,223 | )                  |  
|Accumulated other comprehensive loss                                                               |                             |                   | (444     | )                  |  
|                                                                                                   |                             |                   |          |                    |  
|                                                                                                   | Total shareholders' deficit |                   |          | (4,557             | )
|                                                                                                   |                             |                   |          |                    |  
|                                                                                                   |                             | $                 | 23,198   |                    | $
|                                                                                                   |                             |                   |          |                    |  

2

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4-D NEUROIMAGING  CONSOLIDATED STATEMENTS OF OPERATIONS  (in thousands, except per-share amounts)  (unaudited)

|                                                     |                                   | Three Months Ended December 31, |       
|---------------------------------------------------- | --------------------------------- | ------------------------------- | ------
|
|REVENUES                                             |                                   |                                 |       
|                                                     | Product sales                     |                                 | $     
|                                                     | Product services                  |                                 |       
|                                                     |                                   |                                 |       
|                                                     |                                   |                                 | 3,130 
|                                                     |                                   |                                 |       
|COST OF REVENUES                                     |                                   |                                 |       
|                                                     | Product                           |                                 |       
|                                                     | Product services                  |                                 |       
|                                                     |                                   |                                 |       
|                                                     |                                   |                                 | 1,504 
|                                                     |                                   |                                 |       
|GROSS MARGIN                                         |                                   |                                 | 1,626 
|                                                     |                                   |                                 |       
|OPERATING EXPENSES                                   |                                   |                                 |       
|                                                     | Research and development          |                                 |       
|                                                     | Marketing and sales               |                                 |       
|                                                     | General and administrative        |                                 |       
|                                                     | Goodwill amortization             |                                 |       
|                                                     |                                   |                                 |       
|                                                     |                                   |                                 | 2,258 
|                                                     |                                   |                                 |       
|OPERATING LOSS                                       |                                   |                                 | (632  
|                                                     | Interest expense                  |                                 |       
|                                                     | Interest income                   |                                 |       
|                                                     | Other income, net                 |                                 |       
|                                                     |                                   |                                 |       
|LOSS BEFORE PROVISION FOR INCOME TAXES               |                                   | $                               | (735  
|                                                     | Provision for income taxes        |                                 |       
|                                                     |                                   |                                 |       
|NET LOSS                                             |                                   | $                               | (810  
|                                                     |                                   |                                 |       
|BASIC AND DILUTED NET LOSS PER SHARE                 |                                   | $                               | (0.01 
|                                                     |                                   |                                 |       
|Weighted average number of common shares outstanding |                                   |                                 | 84,975
|                                                     |                                   |                                 |       
|COMPREHENSIVE LOSS:                                  |                                   |                                 |       
|                                                     | Net loss                          |                                 | $     
|                                                     | Cumulative translation adjustment |                                 |       
|                                                     |                                   |                                 |       
|                                                     | Comprehensive loss                |                                 | $     
|                                                     |                                   |                                 |       

3

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4-D NEUROIMAGING  CONSOLIDATED STATEMENTS OF CASH FLOWS  (in thousands)  (unaudited)

|                                                        |                                                                                           | Three Months Ended December 31,            |                                                    
|------------------------------------------------------- | ----------------------------------------------------------------------------------------- | ------------------------------------------ | ---------------------------------------------------
|
|OPERATING ACTIVITIES                                    |                                                                                           |                                            |                                                    
|                                                        | Net loss                                                                                  |                                            | $                                                  
|                                                        | Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |                                            |                                                    
|                                                        |                                                                                           | Depreciation                               |                                                    
|                                                        |                                                                                           | Amortization of goodwill                   |                                                    
|                                                        |                                                                                           | Amortization of minimum royalty obligation |                                                    
|                                                        |                                                                                           | Income from investment in Magnesensors     |                                                    
|                                                        |                                                                                           | Deferred income taxes                      |                                                    
|                                                        | Changes in operating assets and liabilities excluding effects of acquisition:             |                                            |                                                    
|                                                        |                                                                                           | Restricted cash                            |                                                    
|                                                        |                                                                                           | Accounts receivable                        |                                                    
|                                                        |                                                                                           | Inventories                                |                                                    
|                                                        |                                                                                           | Prepaid expenses and other                 |                                                    
|                                                        |                                                                                           | Accounts payable                           |                                                    
|                                                        |                                                                                           | Accrued liabilities                        |                                                    
|                                                        |                                                                                           | Accrued salaries and employee benefits     |                                                    
|                                                        |                                                                                           | Customer deposits                          |                                                    
|                                                        |                                                                                           | Deferred revenue                           |                                                    
|                                                        |                                                                                           |                                            |                                                    
|                                                        |                                                                                           |                                            | Net cash provided by (used in) operating activities
|                                                        |                                                                                           |                                            |                                                    
|INVESTING ACTIVITIES                                    |                                                                                           |                                            |                                                    
|                                                        | Change in short-term investments, net                                                     |                                            |                                                    
|                                                        | Purchases of property and equipment                                                       |                                            |                                                    
|                                                        | Acquisition of Neuromag, net of cash acquired                                             |                                            |                                                    
|                                                        |                                                                                           |                                            |                                                    
|                                                        |                                                                                           |                                            | Net cash used in investing activities              
|                                                        |                                                                                           |                                            |                                                    
|FINANCING ACTIVITIES                                    |                                                                                           |                                            |                                                    
|                                                        | Proceeds from notes payable                                                               |                                            |                                                    
|                                                        | Repayments of notes payable                                                               |                                            |                                                    
|                                                        | Payments on capital lease obligations                                                     |                                            |                                                    
|                                                        | Borrowings on capital lease obligations                                                   |                                            |                                                    
|                                                        |                                                                                           |                                            |                                                    
|                                                        |                                                                                           |                                            | Net cash (used in) provided by financing activities
|                                                        |                                                                                           |                                            |                                                    
|                                                        |                                                                                           |                                            | Effect of exchange rate changes                    
|Net Increase (Decrease) in Cash and Cash Equivalents    |                                                                                           |                                            | (29                                                
|                                                        |                                                                                           |                                            |                                                    
|Cash and Cash Equivalents at Beginning of Period        |                                                                                           |                                            | 1,083                                              
|                                                        |                                                                                           |                                            |                                                    
|Cash and Cash Equivalents at End of Period              |                                                                                           | $                                          | 1,054                                              
|                                                        |                                                                                           |                                            |                                                    
|SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES |                                                                                           |                                            |                                                    
|                                                        | Royalty obligation incurred in acquisition of Neuromag Oy                                 |                                            | $                                                  
|                                                        | Adjustment of acquisition liabilities to goodwill                                         |                                            | $                                                  
|                                                        | Property and equipment transfer to inventories for customer sale                          |                                            | $                                                  
|                                                        |                                                                                           |                                            |                                                    
|SUPPLEMENTAL DISCLOSURES:                               |                                                                                           |                                            |                                                    
|                                                        | Cash paid for interest                                                                    |                                            | $                                                  
|                                                        |                                                                                           |                                            |                                                    

4

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4-D NEUROIMAGING  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (unaudited)

NOTE 1.  BUSINESS AND BASIS OF PRESENTATION

4-D Neuroimaging, founded in 1970 as a California corporation, is engaged primarily in the business of developing, manufacturing and selling
medical imaging systems to medical institutions. The magnetic source imaging ("MSI") systems developed by the Company measure magnetic fields created by the human body for the noninvasive diagnosis of
certain medical disorders.

On
December 22, 1999, 4-D Neuroimaging acquired all of the issued and outstanding capital stock ("Shares") of Neuromag Oy pursuant to the terms of a Share Purchase
Agreement, by and between Marconi Medical Systems, Inc. ("Marconi") and 4-D (the "Share Purchase Agreement"). The acquisition of Neuromag Oy has been accounted for under the
purchase method of accounting. The Company paid $10 million in cash and agreed to pay Marconi an interest-free minimum royalty obligation of $312,500 per year for eight years
(totaling $2.5 million and a maximum of $5 million in royalties. The minimum royalty obligation was recorded at acquisition at a net present value of $1.7 million using an imputed
interest rate of approximately 10 percent. The fair value of net assets acquired was approximately $1,100,000. The purchase price in excess of the fair value of net assets acquired was recorded
as goodwill totaling approximately $10.6 million and is being amortized over 8 years. Similar to 4-D, Neuromag Oy is engaged in the research, development, manufacturing, and
sales of MSI systems.

The
unaudited consolidated condensed financial statements of 4-D Neuroimaging and its subsidiaries, Neuromag Oy, a wholly owned Finnish entity, and Biomagnetic
Technologies, GmbH, an inactive wholly owned German entity, (together, the "Company", "we", "our", or "4-D") have been prepared in accordance with the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the
United States have been condensed or omitted pursuant to such rules and regulations. The Company suggests that these financial statements be read in conjunction with the financial statements and notes
thereto included in the Company's annual report on Form 10-K for the fiscal year ended September 30, 2000.

In
the opinion of the Company, the accompanying unaudited consolidated condensed financial statements contain all adjustments, consisting only of normal recurring entries, necessary
to present fairly its financial position at December 31, 2000 and the results of its operations and its cash flows for the periods presented.

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 these estimates.

The
accompanying statements of operations include the results of operations of Neuromag Oy for the three months ended December 31, 2000. The results of operations between
December 23, 1999 and December 31, 1999 were not material to the consolidated statements of operations (see Note 4).

Certain
prior period balances have been reclassified to conform to the current period presentation.

5

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NOTE 2.  DEBT OBLIGATIONS

To acquire the shares of Neuromag Oy, the Company obtained a loan from AIG Private Bank Ltd. totaling $11 million (the "Neuromag Note") that is
secured by the entire share capital of Neuromag Oy and is guaranteed by an entity affiliated with a member of the Company's Board of Directors. A member of the Company's Board of Directors also serves
on the Board of Directors of AIG Private Bank Ltd. ("AIG Bank" or "AIG"). The $11 million loan was restructured in July 2000 which extended the original maturity date from
June 30, 2000 to December 29, 2000 and the principal amount was increased to $11.4 million. On December 29, 2000, the Company did not make payment at maturity of the note.
On February 15, 2001, the Company and AIG reached an agreement in principle, extending the maturity date to July 20, 2001, increasing the loan principal to approximately
$12 million (capitalizing accrued interest of approximately $550,000 into the loan principal) and obtaining additional guarantees of indebtedness from another bank.

The
Company does not currently anticipate being able to pay off the AIG loan at the proposed maturity on July 20, 2001 without raising additional capital. The Neuromag note is
secured by the shares of Neuromag Oy. If the Company is unable to renegotiate or pay off the AIG loan, AIG could exercise its security interest and take ownership of Neuromag Oy.

In
June 2000, the Company obtained unsecured loans totaling $835,000 from BDN, a related party, and used approximately $485,000 of the proceeds to pay interest due AIG at
June 30, 2000 in conjunction with extending the maturity of the Neuromag Note to December 29, 2000. BDN is a Spanish company owned by three members of the Company's Board of Directors.
The BDN loans were originally due on September 30, 2000. During October 2000, the Company repaid approximately $123,000 of principal and $27,000 of interest for these loans and
negotiated an extension of the maturities of the BDN notes until March 31, 2001. The Company is currently negotiating with BDN to extend the loan maturities to September 30, 2001.

Prior
to acquisition by 4-D, Neuromag borrowed a total of FIM 3,140,000 (approximately $474,000 at December 31, 2000) from TEKES. The future repayment date for
principal and related accrued interest outstanding is dependent upon Neuromag Oy generating sufficient distributable equity, as defined, in accordance with Finnish generally accepted accounting
principles, in the future.

In
September 2000, the Company obtained an unsecured loan from Swisspartners, a related party, totaling $450,000. A member of the Company's Board of Directors is a partner of
Swisspartners. The Swisspartners loan is due on September 30, 2001.

In
an event of acceleration of the Company's indebtedness, it is possible that the Company may be required to seek protection under bankruptcy laws, either voluntarily or
involuntarily. There can be no assurance that the Company will be able to raise additional capital to repay its indebtedness or be able to renegotiate any of its indebtedness on terms acceptable to
the Company, if at all.

NOTE 3.  BUSINESS RISKS AND UNCERTAINTIES

The Company is experiencing serious liquidity issues and incurred net losses of $8,127,000, $7,464,000, and $4,968,000 in fiscal 2000, 1999 and 1998,
respectively. The Company had negative cash flows from operations of $5,217,000, $8,602,000, and $5,520,000 in fiscal 2000, 1999 and 1998, respectively. For the quarter ended December 31, 2000,
the Company incurred a net loss of $810,000 and had positive cash flows from operations of $417,000. At December 31, 2000, the Company had an accumulated deficit of $107,223,000, a net capital
deficiency of $4,557,000, and a working capital deficiency of $14,433,000.

In
an effort to address its operational and liquidity issues, management continues to work with it lenders, is attempting to raise additional capital and is developing cost reduction
measures on a

6

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worldwide basis to bring its cost structure more in line with expected revenues. If management is not successful in initiating and executing its plans, management anticipates that capital, working
capital, and debt service requirements in fiscal 2001 will substantially exceed cash projected to be generated by MSI systems sales.

Based
on the Company's current expectation of anticipated cash receipts related to firm orders received and anticipated bookings of up to two additional MSI systems, the Company
expects to have sufficient cash to continue operations through April 2001 without taking into account cash requirements for maturities of its notes payable. Historically, the Company has raised
additional capital through its majority shareholders and related parties to fund continuing operations. The Company is working with these shareholders and related parties to renegotiate, reduce or
repay its debt obligations and to provide additional funding for operations. There can be no assurance that these sources of capital will be available, or that existing debt can be renegotiated on
terms acceptable to the Company, if at all.

Realization
of the Company's operating plans is dependent upon its ability to successfully close a number of MSI system sales in a highly competitive market for the limited number of
systems being purchased worldwide. There can be no assurance that sufficient sales of the Company's MSI systems will be achieved in order to realize the current operating plans. Historically, there
has been ongoing price competition from the Company's competitors for the currently limited number of whole head systems being purchased worldwide. This competition may affect potential future
profitability of the Company's MSI systems, the extent of which is not presently determinable.

To
date, the Company has been engaged principally in research and development and marketing activities, and has made only low volume sales to clinical research institutions. The
Company is dependent on its current MSI systems as its principal products for which there are currently only limited clinical applications. Additional clinical applications development needs to be
conducted with MSI systems at major medical centers before the Company can begin to develop a commercial clinical market. There can be no assurance that a commercial market will develop for diagnostic
or monitoring uses of the Company's MSI systems. A continued lack of clinical applications and a commercial market for the Company's MSI systems would have a material adverse impact on the Company's
financial position, results of operations, and cash flows.

The
Company's commercial success is also highly dependent on the availability of reimbursement for procedures performed by the Company's customers using MSI systems. As of
December 31, 2000, there have been limited reimbursements from third party payors on a case-by-case basis. Although the number of third party payors making
reimbursements has increased, there is no assurance that third party reimbursements will become widely available. Reimbursements are not currently provided for MSI procedures by the United States or
Japanese governments, nor is there any assurance that these governments will authorize or budget for such procedures in the future. If widespread availability of reimbursements from government and
private insurers is not achieved, the Company's financial position, results of operations and cash flows would be materially adversely affected. The Company also cannot predict what legislation
relating to its business or the health care industry may be enacted in the future, including legislation relating to third party reimbursements, or what effect such legislation may have on its
financial position, results of operations and cash flows.

The
industry in which the Company operates is characterized by rapid technological change. New products using other technologies or improvements to existing products may reduce the
size of the potential markets for the Company's products, and may render them obsolete or non-competitive. Competitors may develop new or different products using technology or imaging
modalities that may provide or be perceived as providing greater value than the Company's products. Any such

7

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development could have a material adverse effect on the Company's financial position, results of operations and cash flows.

The
accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed above and as shown in the accompanying
consolidated financial statements, the Company has operating and liquidity concerns that raise substantial doubt about the Company's ability to continue as a going concern. There can be no assurance
that the Company will be able to successfully improve its operating results and restructure its indebtedness or that its liquidity and capital resources will be sufficient to maintain its normal
operations. The financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that
might result should the Company be unable to continue as a going concern.

The
report of the Company's independent public accountants on the Company's financial statements included in its Form 10-K for the year ended September 30,
2000 contained a modification related to the Company's ability to continue as a going concern.

NOTE 4.  ACQUISITION OF NEUROMAG OY AND PRO FORMA DATA

Unaudited condensed pro forma net revenues and net loss for the three months ended December 31, 1999, assuming the acquisition of Neuromag Oy occurred
on September 30, 1999, are as follows (in thousands):

Three months ended
December 31, 1999(unaudited)Net revenues

$
2,303Net loss

$
(1,761
)


NOTE 5.  BASIC AND DILUTED NET LOSS PER SHARE

Shares used in computing basic and diluted net loss per share include the weighted average number of common shares outstanding. Potentially dilutive
securities, including stock options, are antidilutive and are excluded from the computation of diluted net loss per share.

NOTE 6.  INVENTORIES

The composition of inventories is as follows (in thousands):

December 31, 2000

September 30, 2000(unaudited)Raw materials

$
915

$
1,018Work-in process


4,665


4,852Finished goods


1,931


475$
7,511

$
6,345


NOTE 7.  SEGMENT INFORMATION

The Company operates in one segment that includes developing, manufacturing and selling magnetic source imaging products. The overall market for the Company's
operations can be further divided into three overlapping sub-segments: the basic research market, the applications research

8

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market, and the commercial clinical market. To date, substantially all of the Company's revenues have been derived from, and substantially all of the Company's assets have been devoted to, the basic
research market. The Company also assesses its operations for 4-D and Neuromag on a stand-alone basis. Summary data related to 4-D and Neuromag Oy is as follows (in thousands):

Three Months Ended December 31, 20004-D

NeuromagRevenues

$
1,248

$
1,882Gross margin


617


1,009Operating profit (loss)


(1,090
)

458Net profit (loss)

$
(1,164
)
$
354


As
of December 31, 2000, total assets for 4-D and Neuromag Oy totaled $18,059,000 and $5,139,000, respectively.

NOTE 8.  COMPREHENSIVE INCOME

The functional currency of Neuromag Oy is the Finnish Markka. As such, translation adjustments related to the financial statements of Neuromag Oy are accounted
for as a component of accumulated other comprehensive loss.

NOTE 9.  RECENT ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133 "Accounting
for Derivative Instruments and Hedging Activities," in June 1999 the FASB issued SFAS No. 137 "Accounting for Derivative Instruments and Hedging ActivitiesDeferral of the
Effective Date of FASB Statement No. 133," and in June 2000 the FASB issued SFAS No. 138 "Accounting for Derivative Instruments and Hedging ActivitiesAn Amendment of
SFAS No. 133." These statements establish accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, (collectively
referred to as derivatives) and for hedging activities. They require that an entity recognize all derivatives as either assets or liabilities and measure those instruments at fair value. The Company
adopted SFAS No. 133, as amended by SFAS No. 137 and SFAS No. 138, in the first quarter of fiscal 2001. The adoption of these standards did not have an impact on the Company's
financial position or results of operations as the Company had not entered into any derivative instrument arrangements.

In
December 1999, the Securities and Exchange Commission (the "SEC") issued Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial Statements", in
which the SEC interprets existing accounting literature related to revenue recognition. SAB No. 101, as amended, will be adopted by the Company no later than the fourth fiscal quarter of fiscal
2001. The Company's adoption of SAB No. 101 in the fourth quarter of fiscal 2001 is not expected to have a material impact on the Company's consolidated financial position or results of
operations.

In
July 2000, the Emerging Issues Task Force ("EITF") reached a consensus on EITF No. 00-10, "Accounting for Shipping and Handling Fees and Costs." EITF
Issue No. 00-10 requires that all amounts billed to a customer in a sales transaction related to shipping and handling, if any, represent revenue to the vendor and should be
classified as revenue. There has been no consensus at this time on the treatment for the related costs. The Company will adopt the provisions of EITF Issue No. 00-10 in the fourth
quarter of fiscal 2001. The Company has not yet determined what impact, if any, the

9

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adoption of EITF Issue No. 00-10 will have on its consolidated financial position, results of operations or related disclosures thereto.

NOTE 10.  RESTATEMENT AND REISSUANCE OF FINANCIAL STATEMENTS

The Company expensed certain project costs, which are associated with the production of Neuromag Oy's Vectorview units, during the quarter ended
December 31, 2000, thereby, overstating cost of revenues and understating inventory by approximately $482,000. These project costs should have been capitalized as inventory costs and expensed
when the revenue for a unit is recognized. Therefore, inventory and cost of revenues for the quarter ended December 31, 2000 were restated to capitalize these project costs as inventory. The
basic and diluted loss per share decreased by $0.01 based upon this restatement.

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following information should be read in conjunction with the condensed consolidated financial statements and the accompanying notes included in Item 1 of
this quarterly report, and the audited financial statements, accompanying notes and Management's Discussion and Analysis of Financial Condition and Results of Operations contained in our annual report
on Form 10-K for the fiscal year ended September 30, 2000. See "Risks and Uncertainties" for a discussion of some of the factors known to us that could cause reported
financial information not to be necessarily indicative of future results. We are not obligated to publicly release the results of any revisions to forward-looking statements to reflect events and
circumstances arising after the date this report is filed.



4-D Neuroimaging is engaged primarily in the business of developing, manufacturing and selling innovative medical imaging systems to medical
institutions. The MSI systems developed by the Company measure magnetic fields created by the human body for the noninvasive diagnosis of certain medical disorders.

The
Company is experiencing serious operating and liquidity issues. These issues are discussed in more detail under "Results of Operations" and "Liquidity and Capital Resources"
below.

The
measurement of the body's magnetic fields by MSI provides information about the normal and abnormal functioning of the brain, heart and other organs. The Company is focusing on
the use of its technology for potential commercial market applications such as the diagnosis and planning for surgical treatment of epilepsy, and the functional mapping of areas of the brain at risk
during surgery for tumors and other lesions. Currently, the medical industry is aware of only a few established diagnostic uses for MSI Systems. The Company is continuing to investigate the potential
applications of its
technology for problems of the heart, spine, and gastrointestinal system, as well as for disorders of the brain such as closed-head trauma, schizophrenia and other neuro-psychiatric
disorders.

As
of December 31, 2000, fifty-five (55) MSI systems are installed in medical and research institutions worldwide, and more than 5,000 MSI examinations have
been performed on patients and control subjects at the Company's application development sites. Related findings by 4-D and its collaborators have been published in more than 200
scientific and medical papers. Since the first reimbursement for MSI procedures was received in September 1993, more than 200 insurance companies have approved reimbursement on a
case-by-case basis for certain MSI procedures performed with the Company's MSI systems

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In fiscal 1995, 4-D announced development of the Magnes 2500 WH, an expansion of the existing Magnes I and Magnes II systems product line. The Magnes 2500 WH allows for
examination of the entire brain at once and is designed for evaluating ambulatory or critically ill patients in seated or fully reclined positions. As of December 31, 2000, the Company had
shipped fifteen Magnes 2500 WH systems and received thirteen final acceptances from customers. In fiscal 2000 4-D completed the development of the Magnes 3600 WH, and has shipped its first
system to a customer. The Magnes 3600 increased the sensitivity of the Company's MSI system by increasing the number of detector channels.

On
December 22, 1999, 4-D acquired all of the issued and outstanding capital stock ("Shares") of Neuromag Oy pursuant to the terms of a share purchase agreement, by
and between Marconi Medical Systems, Inc. ("Marconi") and 4-D (the "Share Purchase Agreement"). Under the terms of the Share Purchase Agreement, 4-D paid a total of
$10 million in cash to Marconi for the purchase of the Shares and agreed to pay between a minimum of $2,500,000 and a maximum of $5,000,000 in royalties to Marconi under an ancillary royalty
agreement over the next 8 years. The acquisition was funded by a loan from AIG Private Bank Ltd. ("AIG").

Similar
to 4-D, Neuromag Oy is engaged in the research, development and manufacturing of MSI systems. Neuromag Oy is located in Helsinki, Finland. 4-D operates
Neuromag Oy as a subsidiary of 4-D. Neuromag Oy developed and sold its first MSI system, the Neuromag 122, in 1994. Neuromag then introduced its next generation product, the Vectorview, in
1997. Both are whole head systems, designed to evaluate brain function.

The
current price of 4-D's MSI systems ranges from approximately $1.0 to $2.5 million, depending upon system configuration. A major portion of the Company's sales
have been, and are expected to be, in foreign markets. Although the distributor agreements that the Company has entered into in the Far East have required sales to be priced in U.S. dollars, the
Company has previously priced certain of its European sales in the currency of the country in which the product was sold and the prices of such products in U.S. dollars varied as the value of the U.S.
dollar fluctuated against the quoted foreign currency price. Additionally, substantially all of the receivables and payables of the Company's foreign subsidiaries are denominated in currencies other
than U.S. dollars. Consequently, the Company's reported results are subject to various risks, including without limitation, foreign currency risks. Although at December 31, 2000 the Company did
not have any open forward exchange contracts, the Company may in the future enter into forward exchange contracts to partially hedge, or protect against, such foreign currency exposure, if
appropriate. As part of a comprehensive approach to risk management, the Company is presently evaluating alternatives to address this risk. See our discussion under "Risks and
UncertaintiesIf foreign currency rates fluctuate our return on sales in U.S. dollars may suffer" and Item 3 "Quantitative and Qualitative Disclosures About Market Risk", for more detailed
discussions of the quantitative and qualitative disclosures about market risk.

The
Company believes that the relatively small number of proven medical applications for its MSI systems, the lack of routine reimbursement for MSI procedures, and the uncertainty of
product acceptance in the U.S. market have limited system sales. Additionally, it is not possible to reliably predict the timing and extent of future product sales due to the uncertainties of the
acceptance of medical applications, reimbursement and product acceptance. The Company does not anticipate multiple sales to the same end-user at current sales volumes, and the sale of one
MSI system may have a significant impact on the Company's financial position and results of operations during any reporting period. As a result, quarterly and annual operating performance will
continue to fluctuate significantly.



The Company expensed certain project costs, which are associated with the production of Neuromag Oy's Vectorview units, during the quarter ended
December 31, 2000, thereby, overstating

11

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cost of revenues and understating inventory by approximately $482,000. These project costs should have been capitalized as inventory costs and expensed when the revenue for this unit is recognized.
Therefore, inventory and cost of revenues for the quarter ended December 31, 2000 were restated to capitalize these project costs to inventory. The basic and diluted loss per share decreased by
$0.01 based upon this restatement. In addition, the gross margin for the period ended December 31, 2000 increased $482,000 to $1,626,000. The gross margin percentage is 52% reflecting the sale
of systems to the Asian market where margins have historically been higher.



The Company's results of operations for the quarter ended December 31, 2000 report increased margins, reduced operating loss, and a reduction in net
loss as compared to the quarter ended December 31, 1999. These improved results are primarily due to the favorable timing of multiple product acceptances and associated revenue recognition. In
addition, the improved margins are due to the fact that both major sales recognized in the current quarter did not include Magnetically Shielded Rooms ("MSR") on which the Company has historically
realized minimal margins. Additionally, one of the sales resulted from the conversion of a system on loan for a clinical development collaboration. This system had been depreciated on a straight line
basis for 2 years (of a 5 year estimated useful life) during the collaboration agreement prior to sale. The results of operations for the three months ended December 31, 2000 are
not necessarily indicative of the results to be expected for the Company's fiscal year ending September 30, 2001 or for future quarters.

Total
revenues for the first quarter of fiscal 2001 were $3,130,000, including $224,000 of service revenues, compared to $278,000 of total revenues, including $93,000 of service
revenues, for the first quarter of fiscal 2000. This increase in total revenues was due primarily to the recognition of revenue for two MSI systems in 2001 compared to none in 2000.

Cost
of revenues for the first quarter of fiscal 2001 were $1,504,000, compared to $447,000 for the first quarter of fiscal 2000. The increase in cost of revenues was related to the
recognition of two MSI systems in 2001 compared to none in 2000.

Research
and development expenses for the first quarter of fiscal 2001 amounted to $711,000, compared to $545,000 for the first quarter of fiscal 2000. Research and development
expenses increased from the addition of Neuromag Oy, offset by reductions in employee headcount from consolidation efforts and the reduction of expenses related to development of the Company's WH 3600
system.

Marketing
and sales expenses amounted to $514,000 for the first quarter of fiscal 2001, compared to $590,000 for the first quarter of fiscal 2000. Marketing and sales expenses
decreased despite the addition of Neuromag Oy due to the Company's consolidation efforts.

General
and administrative expenses totaled $696,000 for the first quarter of fiscal 2001, compared to $483,000 for the first quarter of fiscal 2000. This increase is primarily
attributable to additional general and administrative expenses incurred as a result of the acquisition of Neuromag Oy.

Goodwill
amortization expense totaled $337,000 in the first quarter of fiscal 2001, compared to none in the first quarter of fiscal 2000 with the acquisition of Neuromag Oy on
December 22, 1999.

12

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Interest expense totaled $330,000 for the first quarter of fiscal 2001, compared to none during the first quarter of fiscal 2000. The increase in the first quarter of fiscal 2001 was
the result of borrowings to acquire Neuromag Oy and borrowings to fund operations.

Other
income totaled $202,000 in the first quarter of fiscal 2001, compared to $51,000 in the first quarter of fiscal 2000. The increase is primarily attributable to $200,000 in
income from investment in Magnesensors. During the first quarter of fiscal 2001, 4-D notified Magnesensors that it would no longer continue to provide a $200,000 guarantee of indebtedness
due to the termination of its contractual obligations to do so and 4-D's liquidity concerns. 4-D had been providing the guarantee, and under the equity method of accounting for
its investment in Magnesensors, had previously recorded its proportionate share of Magnesenors' losses to the extent of 4-D's debt guarantee.

Provision
for income taxes totaled $75,000 in the first quarter of fiscal 2001, compared to none in the first quarter of fiscal 2000. The tax provision in the first quarter of 2001
pertains to Finnish taxes for the Company's Neuromag Oy subsidiary.

Net
loss for the first quarter ended December 31, 2000 amounted to $810,000 compared to a net loss of $1,720,000 for the comparable period in the prior fiscal year.



The Company is experiencing serious liquidity issues and incurred net losses of $8,127,000, $7,464,000, and $4,968,000 in fiscal 2000, 1999 and 1998,
respectively. The Company had negative cash flows from operations of $5,217,000, $8,602,000, and $5,520,000 in fiscal 2000, 1999 and 1998, respectively. For the quarter ended December 31, 2000,
the Company incurred a net loss of $810,000 and had positive cash flows from operations of $417,000. At December 31, 2000, the Company had an accumulated deficit of $107,223,000, a net capital
deficiency of $4,557,000, and a working capital deficiency of $14,433,000.

On
December 29, 2000, the Company did not make payment at maturity of its note payable to AIG originating from the acquisition of Neuromag Oy, totaling $11,400,000 and related
accrued interest of $540,000. On February 15, 2001, the Company and AIG reached an agreement in principle, extending the maturity date to July 20, 2001, increasing the loan principal to
approximately $12 million (capitalizing accrued interest of approximately $550,000 into the loan principal) and obtaining additional guarantees of indebtedness from another bank.

The
Company does not currently anticipate being able to pay off the AIG loan at the proposed maturity on July 20, 2001 without raising additional capital. The Neuromag note is
secured by the shares of Neuromag Oy. If the Company is unable to renegotiate or pay off the AIG loan, AIG could exercise its security interest and take ownership of Neuromag Oy.

In
June 2000, the Company obtained unsecured loans totaling $835,000 from BDN, a related party, and used approximately $485,000 of the proceeds to pay interest due AIG at
June 30, 2000 in conjunction with extending the maturity of the Neuromag Note to December 29, 2000. BDN is a Spanish company owned by three members of the Company's Board of Directors.
The BDN loans were originally due on September 30, 2000. During October 2000, the Company repaid approximately $123,000 of principal and $27,000 of interest for these loans and
negotiated an extension of the maturities of the BDN notes until March 31, 2001. The Company is currently negotiating with BDN to extend the loan maturities to September 30, 2001.

Prior
to acquisition by 4-D, Neuromag borrowed a total of FIM 3,140,000 (approximately $474,000 at December 31, 2000) from TEKES. The future repayment date for
principal and related accrued interest outstanding is dependent upon Neuromag Oy generating sufficient distributable equity, as defined, in accordance with Finnish generally accepted accounting
principles, in the future.

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In September 2000, the Company obtained an unsecured loan from Swisspartners, a related party, totaling $450,000. A member of the Company's Board of Directors is a partner of
Swisspartners. The Swisspartners loan is due on September 30, 2001.

In
an event of acceleration of the Company's indebtedness, it is possible that the Company may be required to seek protection under bankruptcy laws, either voluntarily or
involuntarily. There can be no assurance that the Company will be able to raise additional capital to repay its indebtedness or be able to renegotiate any of its indebtedness on terms acceptable to
the Company, if at all.

In
an effort to address its operational and liquidity issues, management continues to work with its lenders, is attempting to raise additional capital, and is developing cost
reduction measures on a worldwide basis to bring its cost structure more in line with expected revenues. If management is not successful in initiating and executing its plans, management anticipates
that capital, working capital, and debt service requirements in fiscal 2001 will substantially exceed cash projected to be generated by MSI systems sales.

Based
on the Company's current expectation of anticipated cash receipts related to firm orders received and anticipated bookings of up to two additional MSI systems, the Company
expects to have sufficient cash to continue operations through April 2001 without taking into account cash requirements for maturities of its notes payable. Historically, the Company has raised
additional capital through its majority shareholders and related parties to fund continuing operations. The Company is working with these shareholders and related parties to renegotiate, reduce or
repay its debt obligations and to provide additional funding for operations. There can be no assurance that these sources of capital and funds will be available or that existing debt can be
renegotiated on terms acceptable to the Company, if at all.

The
accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed above and as shown in the accompanying
consolidated financial statements, the Company has operating and liquidity concerns that raise substantial doubt about the Company's ability to continue as a going concern. There can be no assurance
that the Company will be able to successfully improve its operating results and restructure its indebtedness or that its liquidity and capital resources will be sufficient to maintain its normal
operations. The financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that
might result should the Company be unable to continue as a going concern.

The
report of the Company's independent public accountants on the Company's financial statements included in its Form 10-K for the year ended September 30,
2000 contained a modification related to the Company's ability to continue as a going concern. In addition, the reader is encouraged to refer to the Management's Discussion and Analysis of Financial
Condition and Results of Operation under Item 2 of Part I of this quarterly report for additional risks or other considerations.

At
December 31, 2000, the Company had a working capital deficit of $14,433,000 as compared to $14,186,00 at September 30, 2000. The Company's working capital deficiency
primarily resulted from continued losses, negative cash flows from operations, short term financing for the acquisition of Neuromag Oy and amounts borrowed for working capital requirements.

Capital
equipment expenditures totaled $298,000 for the first quarter of fiscal 2001, compared to $52,000 for the first quarter of fiscal 2000. Capital expenditures have been low due
to the Company's liquidity concerns.



This Quarterly Report on Form 10-Q may contain forward-looking statements that involve risks and uncertainties. Such statements include, but
are not limited to, statements containing the words

14

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"believes", "anticipates", "expects", "estimates", and words of similar import. The Company's results could differ materially from any forward-looking statements, which reflect management's opinions
only as of the date hereof, as a result of factors, such as those more fully described under "Risks and Uncertainties". The Company undertakes no obligation to publicly release the results of any
revisions to these forward-looking statements. Readers should carefully review the risk factors set forth below as well as other factors addressed in this report, its Annual Report on
Form 10-K and in other documents the Company files from time to time with the Securities and Exchange Commission.



We face the following risks associated with our business operations:

We are uncertain with respect to additional funding and may not be able to meet future capital needs. As a result, there is substantial doubt about the Company's ability to
operate as a going concern.

We
require additional capital to fund the Company's capital, working capital and debt service requirements on an ongoing basis. We will need to restructure our $12 million AIG
loan from the acquisition of Neuromag Oy, our $712,000 BDN notes payable and our $450,000 Swisspartners note. We will need to obtain additional financing to fund operations and repay the notes and
related interest. We may not be able to arrange additional financing or restructure our debt on terms acceptable to us, if at all.

If we continue to incur operating losses and negative cash flows from operations, we may be unable to continue our operations.

Our
financial position reflects that we have been focused on research and development and a commercial MSI market has not developed, resulting in only low volume sales to medical
research institutions. Our net losses in the last three years have been as follows:



In
the last three years, our negative cash flows from operations have been as follows:



At
December 31, 2000, our accumulated deficit was $107,223,000, our shareholders' deficit was $4,557,000 and we had negative working capital of $14,433,000. Our negative
working capital at December 31, 2000 resulted primarily from the purchase of Neuromag Oy for cash in December 1999, which was financed by a short-term loan from AIG Private
Bank, Ltd. and loans from related parties to fund continuing operations. We are developing certain programs in an effort to address our operational and liquidity problems and our ability to
continue operations is dependent on our maintaining adequate financing and bringing our cost structure more in line with expected revenues. If we are not successful in initiating and executing our
plans and refinancing our debt, cash projected to be generated from operations alone will not be sufficient to meet our capital, working capital and debt service requirements in fiscal 2001.

15

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If we are unable to satisfy customer performance and service requirements, we may be unable to compete effectively.

Our
success may be limited by our ability to satisfy customer performance requirements for our systems; as well as by our ability to complete, in a timely fashion, product
developments and enhancements to satisfy customer requirements. In addition, if we or our distributors are not able to respond in a timely manner to service requirements, our competitiveness may be
adversely impacted.

If we are unable to identify additional clinical applications for our MSI systems, there will be no commercially viable markets for our products.

Currently,
there are only a few established diagnostic uses for MSI systems that the medical industry is aware of. Although we have started our own clinical research and testing to
identify new, large application areas, we cannot assure you that a commercial market will develop for multiple uses of our products. A continued lack of clinical applications and commercial market for
our MSI systems will have a material adverse impact on our financial position, results of operations and cash flows.

Our vendors may not continue providing favorable credit terms.

Due to the Company's liquidity issues, the Company has extended vendor payments beyond normal credit terms. If the Company's major vendors were to decline
further credit or require cash on delivery payments, the Company's financial position, results of operations and cash flows would be adversely impacted.

If we are unable to develop additional products, our ability to commercialize our products will be adversely impacted.

Our
success may be limited by our dependence on our current line of MSI systems. We are currently dependent on sales of our MSI systems to basic research institutions that represent a
market of limited size. Our current product line may not fully meet the needs of a commercial clinical market and we may need to develop additional products directly suited to an emerging set of needs
from this market. Our financial results may be materially adversely affected if our current line of MSI products does not fully meet the needs of commercial applications that emerge, or we are not
able to offer new products in a timely and cost effective manner that meet these emerging needs.

If we fail to obtain an adequate level of reimbursement for MSI procedures by third party payors, sales will suffer.

Our
commercial success is also highly dependent on reimbursement for procedures using the MSI system. Currently, Medicare, insurance companies and other healthcare providers approve
payment for MSI procedures on a case-by-case basis. As of December 31, 2000, these third party payors have only approved limited reimbursements in the United States.
Although third party payors have increasingly approved reimbursements, we cannot assure you that third party reimbursements will become widely available. The United States government does not
currently reimburse for MSI procedures. If reimbursement does not become more widely available, our financial position and results of operations will be materially adversely affected. Further, if the
Federal government or any state legislature enacts legislation relating to our business or the health care industry, including legislation relating to third
party reimbursement, our financial position and results of operations could be negatively affected. In addition, there is currently no reimbursement for MSI procedures outside of the United States.

If discoveries or developments of new technologies occur, our products and technology may become obsolete.

Our
industry is characterized by rapid technological change, which may also impact our commercial success. Competitors may develop products using other technologies or may improve
existing products. This competition may reduce the size of the potential market for our products or make them obsolete or non-competitive. Competitors may also develop new or different
products using

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technology or imaging modalities that provide, or are perceived as providing, greater value than the Company's products. Our financial position and results of operations will be materially adversely
affected if such competitive developments occur.

If we fail to compete successfully, our revenues and operating results will be adversely affected.

Historically,
our industry has been characterized by ongoing price competition. Our competitors compete with us for the currently limited number of whole head systems being purchased
worldwide. The future profitability of our systems may be negatively impacted by this competition.

If new government legislation is enacted or unfavorable medical industry trends arise, we may be unable to sell our products and our revenues will
suffer.

We
cannot predict what adverse effect, if any, future legislation or FDA regulations may have on the MSI market and our financial results. Medical industry cost containment trends may
impose restrictions on sizeable third-party reimbursements for diagnostic procedures, limiting the market opportunity. Further, if Federal government agencies or any state legislature enacts
legislation or guidelines relating to our business or the health care industry that create additional business hurdles, including legislation relating to third party reimbursement, our financial
position and results of operations could be negatively affected.

If foreign currency exchange rates fluctuate, our return on sales in U.S. dollars may suffer.

A
significant portion of our sales to date have been in foreign markets. Revenues from international sales represented 99% of our revenues of MSI systems for the fiscal year ended
September 30, 2000 compared to 71% in fiscal 1999. We expect that revenues from international sales will continue to represent a significant portion of our annual revenues. Revenues denominated
in foreign currencies, primarily the Finnish Markka, as a percentage of total revenues, were 66% in fiscal 2000.Because we sell in foreign markets, we
are exposed to potential risks of increases and decreases in foreign currency exchange rates. Although at December 31, 2000 we did not have any open forward exchange contracts, on occasion, we
may enter into forward exchange contracts to partially hedge (or protect) against such foreign currency exchange risks. Fluctuations may reduce the return in U.S. dollars that we actually receive on
our sales and could impact operating results through translation of the Company's subsidiaries' financial statements. These risks may become material as our sales increase or dramatic currency
fluctuations occur from outside events.

The Company's success is dependent upon its ability to attract and retain qualified scientific and management personnel.

The
loss of services of any one of our executive management or key scientific personnel would delay our ability to execute our business plans and reduce our ability to successfully
develop and commercialize products, maintain good customer relationships and compete in the marketplace. We also face increasing difficulties in recruiting qualified personnel in the software and
hardware design areas because of intense competition for such personnel in today's job market. There can be no assurance that the Company will be able to hire, train or retain such qualified
personnel.

In
addition, the loss of the services of the Chief Executive Officer and Principal Financial Officer, D. Scott Buchanan, would have a materially adverse effect on our prospects.
Currently none of the executive officers of the Company have an employment agreement or contract with the Company; all are "at-will" and under no specified term arrangements.

Our stock price is highly volatile and subject to swings based on sales and other market conditions.

The
market prices for securities of companies with newly emerging markets have historically been highly volatile, and their stock price from time to time has experienced significant
price and volume fluctuations that are unrelated to the operating performance of such companies. Moreover, 4-D's

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relatively low trading volume increases the likelihood and severity of volume fluctuations which likely will result in a corresponding increase in the volatility of 4-D's common stock
price. Factors such as announcements of complex technological innovations or new sales, governmental regulations, developments in patent or other proprietary rights, developments in the Company's
relationships with
collaborative partners, general market conditions and the timing of decisions by existing 4-D stockholders to sell large positions of our Common Stock may have a significant effect on the
market price of the Company's common stock. Fluctuations in financial performance from period to period, or acceleration of any of our debt by our lenders, also may have a significant impact on the
market price of the Common Stock.

If our products produce unreliable diagnostic information, it may result in a liability, which would adversely impact our financial condition.

Although
our products are noninvasive and diagnostic in nature, treatment courses based on the information generated by our instruments may be unreliable or result in adverse effects.
This possibility exposes us to the risk of product liability claims. While we carry product liability insurance, there is no assurance that such insurance will be adequate, will be available in the
future at a level and cost that is appropriate, or available at all, or that a product liability claim would not adversely affect our business, prospects, financial position, results of operations,
and cash flows.

Integrating 4-D Neuroimaging and Neuromag Oy has been difficult.

Our acquisition of Neuromag Oy brought together two previous international competitors. Risks common to such mergers include:



Also,
it is possible that despite a successful integration, future results of operations of the merged Company do not meet expectations, due to other risks discussed in this quarterly
report or other documents filed with the SEC, and other factors.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company's variable rate indebtedness is affected by the general level of London Interbank Offered Rate ("LIBOR") interest rates. The Company had
approximately $12,600,000 outstanding under LIBOR based variable rate indebtedness on December 31, 2000. A 2 percent increase above the interest rate applicable at September 30,
2000 for such indebtedness would result in a $252,000 increase in annual interest expense. Renegotiation of any of the Company's indebtedness could also result in material changes to the interest
rates on such indebtedness

18

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For additional information required by this item regarding market risks related to fluctuations in foreign currency exchange rates, see our discussion under "Risks and
UncertaintiesIf foreign currency rates fluctuate, our return on sales in U.S. dollars may suffer" under Item 2-Management's Discussion and Analysis of Financial Condition and
Results of Operations.

PART II.  OTHER INFORMATION

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K.

|a) EXHIBIT NO. |   | DESCRIPTION                                                                                                                                                                                                                                                                                                                                                                                              
|-------------- | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1(1          | ) | Fifth Amended and Restated Articles of Incorporation                                                                                                                                                                                                                                                                                                                                                     
|3.2(2          | ) | Restated By-Laws                                                                                                                                                                                                                                                                                                                                                                                         
|(1             | ) | This exhibit was previously filed as apart of, and is hereby incorporated by reference to the same numbered exhibit in the Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2000 filed with the Securities and Exchange
Commission on May 15, 2000.                                                                                                                                
|(2             | ) | This exhibit was previously filed as a part of, and is hereby incorporated by reference to, the same numbered exhibit in the Registration Statement filed pursuant to the Securities Act of 1933 on Form S-1 Registration Statement No. 33-29095,
 filed June 7, 1989, as amended by Amendment No. 1, filed June 13, 1989, Amendment No. 2, filed July 21, 1989 and Amendment No. 3, filed July 28, 1989.

b)  Reports
on Form 8-K

None.

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SIGNATURES

Pursuant to the requirements 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.

|                     |  | 4-D NEUROIMAGING
|-------------------- |  | ----------------
|AUGUST 20 , 2001DATE |  |                 
|August 20, 2001Date  |  |                 

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