<PAGE>

                                    UNITED STATES
                          SECURITIES AND EXCHANGE COMMISSION
                               WASHINGTON, D.C.  20549

                                      FORM 10-K/A
                                    Amendment No. 1
(Mark One)

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE
    ACT OF 1934
    For the fiscal year ended DECEMBER 31, 1996 or

[ ] 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: 0-20815

                             INVISION TECHNOLOGIES, INC.
                (Exact name of registrant as specified in its charter)

              DELAWARE                               94-3123544 
(State or other jurisdiction of         (I.R.S. Employer Identification No.)
 incorporation or organization) 

                 3420 E. THIRD AVENUE, FOSTER CITY, CALIFORNIA 94404
             (Address of principal executive offices, including zip code)

                                    (415) 578-1930
                 (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, $.001 PAR VALUE

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.  [  ]

Based on the closing sale price of $16.00 on March 25, 1997, the aggregate 
market value of the voting stock held by non-affiliates of the Registrant was 
$62,108,640. For purposes of this computation, voting stock held by directors 
and executive officers of the Registrant and stockholders holding 5% or more 
of the Registrant's outstanding Common Stock has been excluded. Such 
exclusion is not intended, and shall not be deemed, to be an admission that 
such directors, executive officers and stockholders are affiliates of the 
Registrant.

On March 25, 1997, there were 9,205,784 shares of the Registrant's Common
Stock outstanding.

                         DOCUMENTS INCORPORATED BY REFERENCE


Portions of the Registrant's definitive Proxy Statement for the Registrant's 
Annual Meeting of Stockholders to be held June 12, 1997, which has been filed 
with the Securities and Exchange Commission, are incorporated by reference in 
Part III, Items 10, 11, 12 and 13.

<PAGE>

                             INVISION TECHNOLOGIES, INC.

                                  TABLE OF CONTENTS

                                                                           PAGE

COVER PAGE


TABLE OF CONTENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . .    i

PART I  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    1
    Item 1.  Business . . . . . . . . . . . . . . . . . . . . . . . . . .    1
    Item 2.  Properties . . . . . . . . . . . . . . . . . . . . . . . . .   16
    Item 3.  Legal Proceedings. . . . . . . . . . . . . . . . . . . . . .   17
    Item 4.  Submission of Matters to a Vote of Security Holders. . . . .   17

PART II. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  18
    Item 5.  Market for Registrant's Common Equity and Related Stockholder
             Matters . . . . . . . . . . . . . . . . . . . . . . . . . . .  18
    Item 6.  Selected Financial Data . . . . . . . . . . . . . . . . . . .  20
    Item 7.  Management's Discussion and Analysis of Financial Condition
             and Results of Operations . . . . . . . . . . . . . . . . . .  21
    Item 8.  Financial Statements and Supplementary Data . . . . . . . . .  25
    Item 9.  Changes in and Disagreements with Accountants on Accounting
             and Financial Disclosure. . . . . . . . . . . . . . . . . . .  25

PART III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  26
    Item 10. Directors and Executive Officers of the Registrant  . . . . .  26
    Item 11. Executive Compensation. . . . . . . . . . . . . . . . . . . .  26
    Item 12. Security Ownership of Certain Beneficial Owners and
             Management. . . . . . . . . . . . . . . . . . . . . . . . . .  26
    Item 13. Certain Relationships and Related Transactions. . . . . . . .  26

PART IV. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  27
    Item 14.  Exhibits, Financial Statement Schedules, and Reports on Form
              8-K  . . . . . . . . . . . . . . . . . . . . . . . . . . . .  27

SIGNATURES   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  29



                                       i.
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                                       PART I.


Item 1. BUSINESS.

    THE FOLLOWING DISCUSSION MAY CONTAIN FORWARD LOOKING STATEMENTS WHICH 
INVOLVE RISKS AND UNCERTAINTIES.  WHEN USED IN THIS DISCUSSION, THE WORDS 
"ANTICIPATE," "BELIEVE," "ESTIMATE," AND "EXPECT" AND SIMILAR EXPRESSIONS AS 
THEY RELATE TO THE COMPANY OR ITS MANAGEMENT ARE INTENDED TO IDENTIFY SUCH 
FORWARD LOOKING STATEMENTS.  THE COMPANY'S ACTUAL RESULTS, PERFORMANCE OR 
ACHIEVEMENTS COULD DIFFER MATERIALLY FROM THE RESULTS EXPRESSED IN, OR 
IMPLIED BY, THESE FORWARD LOOKING STATEMENTS.  FACTORS THAT COULD CAUSE OR 
CONTRIBUTE TO SUCH DIFFERENCES INCLUDE RISKS RELATED TO MARKET ACCEPTANCE OF 
THE COMPANY'S SINGLE PRODUCT, FLUCTUATIONS IN THE COMPANY'S QUARTERLY AND 
ANNUAL OPERATING RESULTS, THE LOSS OF ORDERS OF THE COMPANY'S PRODUCT, 
INCLUDING THE LOSS OF THE COMPANY'S MOST RECENT ORDER FROM THE FAA, LOSS OF 
ANY OF THE COMPANY'S SOLE SOURCE SUPPLIERS, INTENSE COMPETITION, RELIANCE ON 
LARGE ORDERS, CONCENTRATION OF THE COMPANY'S CUSTOMERS, RISKS RELATED TO THE 
LENGTHY SALES CYCLES FOR THE CTX 5000, BUDGETING LIMITATIONS OF THE COMPANY'S 
CUSTOMERS AND PROSPECTIVE CUSTOMERS, AND THE RISKS RELATED TO THE COMPANY'S 
LIMITED MANUFACTURING EXPERIENCE, AS WELL AS THOSE DISCUSSED IN "BUSINESS 
RISKS" AND ELSEWHERE IN THIS FORM 10-K.

GENERAL

    InVision is the worldwide leader in explosive detection technology.  The 
Company develops, manufactures, markets and supports an explosive detection 
system for civil aviation security based on advanced CT technology.  To date, 
the Company's CTX 5000 is the only EDS to be certified by the FAA for use in 
the inspection of checked luggage on commercial flights.  Historically, the 
FAA has been the leader in establishing standards for aviation security 
worldwide, and the Company believes that airports around the world will 
migrate over time towards security policies consistent with those of the FAA. 
As a result, the Company believes that the CTX 5000 is well positioned to 
become the industry standard.  In December 1996, the Company received an 
order from the FAA for 54 CTX 5000 systems to be installed at the busiest 
U.S. airports.  For the fiscal year ended December 31, 1996 and the quarter 
ended March 31, 1997, the Company had revenues of $15.8 million and $9.4 
million, respectively, and at March 31, 1997 had orders in backlog in the 
amount of $68.6 million.  As of March 31, 1997, 37 CTX 5000 systems had been 
shipped to 13 airports in eight countries around the world. 

    The Company believes that the CTX 5000 is the only EDS capable of 
detecting all types of explosives designated by the FAA to be a threat to 
commercial aviation and that the CTX 5000 is superior to competing systems by 
virtue of its advanced detection technology.  The CTX 5000 is capable of 
capturing and processing substantially more data than other explosive 
detection systems.  The Company believes that there are important 
technological advantages that lead to the superiority of the CTX 5000 over 
systems of the Company's primary competitors.  By combining heightened levels 
of data capture and diagnosis capabilities with simple user interfaces, the 
Company's CTX 5000 is capable of providing high detection and low false alarm 
rates, as well as advanced threat resolution capability and increased 
operator efficiency. 

    The Company's objective is to become the dominant provider of explosive 
detection systems worldwide and to extend its expertise in EDS technology to 
address broader applications.  Specific elements of the Company's growth 
strategy are to enhance its technological leadership, expand its sales and 
marketing organization, leverage its detection technology expertise to enter 
new markets for detection, and selectively pursue strategic relationships and 
acquisitions. 

INDUSTRY BACKGROUND

    MARKET SIZE.  There are over 600 airports worldwide providing scheduled 
service for an aggregate of approximately 2.5 billion passengers per year.  
Of these airports, over 400 are located in the United States, and a 
substantial portion of the remainder are located in Europe and the 
Asia/Pacific region.  It is estimated that it will cost approximately $2.2 
billion to equip the 76 largest airports in the United States with certified 
explosive detection systems. 

                                       1. 

<PAGE>

    THE TERRORIST THREAT.  In recent years, increased incidents of bombings 
and airline terrorism have contributed to an enhanced perception of the 
threat of terrorism among the general public.  According to a report of the 
President's Commission on Aviation Security and Terrorism dated May 15, 1990, 
there were 41 bombings against civilian aviation targets worldwide between 
1975 and 1989.  According to Time Magazine, there were 10,222 bombings in the 
United States between 1983 and 1993.  According to a CBS poll conducted in 
July  1996, airline passengers have expressed a willingness to pay more for 
airline travel and endure delays if such actions will decrease the threat of 
successful airline bombings. 

    THE EVOLUTION OF EXPLOSIVE DETECTION TECHNOLOGIES.  In the 1970's, in 
response to hijackings, airports worldwide began to install x-ray systems to 
screen carry on baggage for weapons such as guns and knives.  In response to 
the implementation of this technology, terrorists in some cases adopted the 
tactic of airline bombings.  The effort to develop automated explosive 
detection capabilities was first established in the late 1970's by the FAA 
and was predicated on the application of conventional x-ray technology.  
However, until the advent of certified explosive detection systems in 1994, 
the Company believes that EDS technology remained largely inadequate.  
Following the bombing of Pan American Flight 103 over Lockerbie, Scotland in 
December 1988, certain European countries hastened to implement explosive 
detection capabilities based upon then existing technologies.  In order to 
placate immediate public safety concerns, these conventional systems were 
designed to process 100% of checked baggage.  However, these conventional 
systems were and continue to remain deficient in that they are unable to 
reliably detect and identify all of the types and amounts of explosives 
determined by the FAA to be a threat to civil aviation. 

    Several advanced explosive detection technologies have been developed to 
attempt to address the need for effective explosive detection.  These systems 
include CT, dual energy x-ray and trace detection.  CT technology uses a 
source of x-rays rotating around an object to create multiple two dimensional 
images, commonly know as "slices," of the density distribution of the 
object's cross section and compares parameters derived from the analysis of 
the density images to a database of expolosives characteristics.  Dual energy 
x-ray systems measure the x-ray absorption properties of a bag's contents at 
two different x-ray energies to determine if any of the contents have the 
physical characteristics of explosive materials.  Trace detection equipment, 
known as "sniffers," detect particulate and chemical traces of explosive 
materials collected by an operator by wiping or vacuuming the bag under 
inspection.  The only explosive detection system to be certified by the FAA 
is the Company's CTX 5000, which is based on CT technology. 

    THE EMERGENCE OF WORLDWIDE STANDARDS AND FAA CERTIFICATION.  Throughout 
the history of civil aviation, the FAA has been a leader in setting the 
standards for aviation security worldwide.  In the 1970's, the FAA first 
established standards for worldwide security by setting guidelines for 
screening of carry on baggage for guns and knives.  These standards were 
subsequently mandated by the United Nations for adoption by all of its member 
states, leading to the installation of over 7,000 detection systems 
worldwide.  Following the December 1988 bombing of Pan American Flight 103, 
the United States enacted the Aviation Security Improvement Act of 1990 (the 
"Aviation Security Act"), in response to which the FAA increased research and 
development funding for advanced explosives detection technology.  To date 
the FAA has spent approximately $150 million on such activities. 

    In 1993, as required by the Aviation Security Act, the FAA adopted a 
certification protocol regarding explosive detection systems for use on 
checked baggage.  The FAA certification process was developed to certify 
equipment that, alone or as part of an integrated system, can detect under 
realistic air carrier operating conditions the amounts, configurations and 
types of explosive material which would be likely to be used to cause 
catastrophic damage to commercial aircraft.  To do so, the FAA contracted 
with the National Academy of Sciences to establish a scientifically valid 
protocol for certification.  The FAA also consulted with a variety of public 
agencies, including the Federal Bureau of Investigation and the Central 
Intelligence Agency.  The result of this collaboration was the establishment 
of a detection protocol which focuses on (i) the categories of explosive 
substances to be detected, (ii) the probability of detection by explosive 
category, (iii) the maximum quantity of explosive that must be detectable, 
(iv) the number of bags processed per hour, and (v) the maximum acceptable 
false alarm rates.  To date only one explosive detection system, the 
Company's CTX 5000, has met the requirements of the protocol and has been 

                                       2.
<PAGE>

certified by the FAA.  In order to meet the throughput criteria established 
in the FAA protocol, the CTX 5000 was certified with two units operating in 
parallel. 

    IMPLEMENTATION OF MULTI LEVEL SCREENING PROCESSES.  As the capabilities 
of EDS technology have evolved and worldwide detection standards have become 
more pervasive, certain airports around the world have sought to augment 
their detection capabilities by implementing various multi level screening 
processes. To date, two distinct processes have become most prevalent: a 
system first implemented by the British Airport Authority (the "BAA 
Approach"); and a system endorsed by the FAA (the "FAA Approach").  Prior to 
the development of certified detection technology and in recognition of the 
deficiencies of existing x-ray technology in providing comprehensive 
detection, certain European airports adopted the BAA Approach, which consists 
of the use of several explosive detection systems operating in series in 
order to attempt to increase detection rates while maintaining throughput 
rates. 

    The FAA Approach was developed following the advent of certified 
detection technology.  Currently, the FAA Approach is comprised of a process 
of passenger "profiling" combined with the use of certified EDS equipment for 
the detection of explosives in baggage deemed to be high risk.  Profiling 
involves an initial determination of whether a particular passenger 
represents a high threat based on certain decision criteria which are 
believed to be reasonable predictors of risk.  Based on this determination, a 
passenger's baggage may undergo a higher level of investigation, which will 
in most cases involve the baggage being screened with the use of certified 
EDS equipment.  In contrast to the BAA Approach, in which the effectiveness 
of the entire detection process is dependent on technologies with greater 
emphasis on throughput than detection, the FAA Approach is predicated on the 
use of high detection technology and is focused on the ability to accurately 
and effectively detect explosives and to identify individuals believed to 
pose the greatest threat to civil aviation. The Company believes that the FAA 
Approach, as it is currently being implemented at major airports throughout 
the United States,  will prove to be the more effective process in reducing 
the dangers associated with the use of explosives against civil aviation. 

    THE GORE COMMISSION.  In response to the recent crash of TWA Flight 800 
off Long Island, New York in July 1996, President Clinton announced the 
formation of the White House Commission on Aviation Safety and Security, 
chaired by Vice President Gore (the "Gore Commission"), to review airline and 
airport security and oversee aviation safety.  The Gore Commission concluded 
that "the threat against civil aviation is changing and growing, and that the 
federal government must lead the fight against it" and recommended that "the 
federal government commit greater resources to improving aviation security."  
The Gore Commission released its initial report in September 1996, and in 
October 1996 the United States Congress enacted legislation which includes a 
$144 million appropriation for 1997 for the deployment of explosives 
detection systems and other advanced security equipment for use by air 
carriers and airport authorities.  Of this amount, $52.2 million, or 36.2%, 
was allocated to the purchase of certified CT technology. 

THE INVISION TECHNOLOGY ADVANTAGE

    The Company believes that the CTX 5000 is the only EDS presently capable 
of reliably detecting all types of explosives designated by the FAA to be a 
threat to commercial aviation and that the CTX 5000 is superior to competing 
systems by virtue of its advanced detection technology.

    The Company's CTX 5000 employs CT technology which was pioneered in the 
medical field in the 1970's and enhanced for use in explosive detection by 
the Company's engineers in the 1990's.  As its principal detection vehicle, 
the CTX 5000 uses a source of x-rays rotating around an object to create 
two-dimensional images of the density distribution of the object's cross 
section.  These cross-sectional images are commonly known as "slices." The 
CTX 5000 is capable of measuring data from several contiguous slices of an 
object in order to capture the 3-dimensional characteristics of an object.  
The data gathered from the slices is used to measure the physical 
characteristics of objects by determining their linear attenuation 
coefficients (density), morphology (shape), and granularity (uniformity).  
Once measured, each characteristic is automatically compared, using 
sophisticated image processing algorithms, to a database of characteristics 
of compounds used in explosive devices in order to assess the threat.  If an 
object is determined to contain the characteristics of an explosive, 
additional slices of the 

                                       3.
<PAGE>

object are collected in order to determine the mass descriminates (quantity) 
of the threat.  At this stage, potential threats which cannot be cleared 
automatically by the CTX 5000 are submitted to an operator for threat 
resolution.  The operator is also presented with information regarding the 
presence of detonators, power sources, proximity charges, metallic objects 
and other characteristics of a potential bomb, and the suspicious objects are 
highlighted in different colors.

    The Company believes that there are three important technical 
characteristics which lead to the superiority of the CTX 5000 over systems of 
the Company's primary competitors, which are based on dual energy technology. 
These characteristics are:

    DATA QUALITY AND QUANTITY.  Dual energy x-ray systems collect data from 
one or two views of an object to determine the atomic number of materials 
encountered during the scan.  CT technology, with approximately 500 views per 
slice, yields more data and is capable of measuring the density of an object. 
While explosives have well defined density ranges which are generally 
distinct from those of the contents of checked baggage, certain classes of 
explosives have atomic numbers which are similar to those of many materials 
found in checked baggage.  As a result, the CTX 5000 is better able to 
distinguish between explosives and the benign contents of checked baggage, 
resulting in higher detection and lower false alarm rates.

    THREE DIMENSIONAL DATA.  CT technology's ability to render three 
dimensional data concerning an object also contributes to its superior 
detection compared to dual energy x-ray technology.  By utilizing these data, 
CT technology is able to map characteristics of an object, such as mass and 
density, regardless of the object's position in the bag and the superposition 
of other objects.  Dual energy x-ray systems render only two dimensional 
data.  As a result, if multiple objects are superimposed over the potential 
explosive, the system's ability to calculate the atomic number of the 
potential explosive is diminished.  Given the inherent limitations of the use 
of atomic numbers as a parameter for explosive detection, this diminished 
capacity with regard to stacked objects is particularly problematic.

    ADVANCED THREAT RESOLUTION.  Threat resolution refers to the process 
following an alarm of determining whether checked baggage is safe or contains 
a threat.  Once an alarm occurs, the CTX 5000 presents its operators with 
images and threat analysis tools that are unavailable in dual energy systems. 
 For example, the CTX 5000 simultaneously provides operators with both x-ray 
images and CT images on separate screens.  These data are cross-referenced 
with each other to give the operator an overall image of a suitcase and 
detailed CT information relating to the contents, and in particular relating 
to the potential threat.  In addition to the images, the CTX 5000 provides an 
abundance of tools and data, designed to allow operators to determine whether 
a bag is a threat requiring further action or is safe to clear to the plane.  
One of these tools is the ability to take additional slices to provide more 
data and focus in on the threat.  In contrast, dual energy x-ray systems 
display a single x-ray image of a potential threat and have a limited ability 
to provide additional information to an operator who suspects that an 
explosive is present.

    The Company believes that the strengths of the CTX 5000 with respect to 
these three important technical characteristics were central to the CTX 5000 
meeting the stringent FAA standards for certification and to gaining 
operational acceptance by the commercial aviation industry.  In addition, the 
Company believes that the limitations of competing technologies with respect 
to these important characteristics will limit these technologies' ability to 
attain the high detection and low false alarm rates necessary to obtain FAA 
certification. However, there can be no assurance that future technological 
innovations will not enable these technologies to overcome these limitations. 

    As the only EDS to be certified by the FAA, the Company believes its CTX 
5000 system is well positioned to be the cornerstone of the advanced 
explosive detection process being promoted by the FAA for implementation at 
airports around the world.  However, there currently is no requirement that 
U.S. airlines or airports (or international airlines or airports) deploy FAA 
certified explosive detection systems or that U.S. airlines or airports (or 
most international airlines or airports) deploy explosive detection systems 
at all. Should the standards be lowered, resulting in other lower priced or 
higher throughput explosive detection systems becoming certified, or should 
other competitive systems otherwise become certified, the Company would lose 
a significant competitive advantage.  Under such circumstances, there can be 
no assurance that the Company's product would be able to 

                                      4.
<PAGE>

compete successfully with these systems.  In addition, should the FAA 
increase its certification standards, there can be no assurance that the CTX 
5000 would meet such standards.

GROWTH STRATEGY

    The Company's objective is to be the leading provider of explosive 
detection systems worldwide and to extend its technology expertise to address 
broader applications for detection.  Specific elements of the Company's 
growth strategy are to:

    ENHANCE TECHNOLOGICAL LEADERSHIP.  The Company believes that its 
technological capabilities provide it with a significant competitive 
advantage. Accordingly, the Company considers research and development to be 
a vital part of its operating discipline, and continues to make substantial 
investments to enhance the performance, functionality and reliability of its 
CTX 5000 hardware and software.  Among the Company's priorities in enhancing 
its technological capabilities are to increase throughput rates while 
maintaining certified detection capability and to increase threat resolution 
capabilities.  In 1996 and the first quarter of 1997, the Company spent $4.3 
million and $1.7 million, respectively, for research and development to 
improve the Company's technology.

    EXPAND SALES AND MARKETING CAPABILITIES.  The Company believes that its 
sales and marketing capability is vital to achieving high levels of market 
penetration for its systems.  The objectives of the Company's sales force 
include promoting broader acceptance for EDS technology worldwide and 
emphasizing the importance of high detection rate EDS technology.  Because 
sales cycles for the CTX 5000 can be lengthy, the Company's sales and 
marketing efforts are focused on developing and maintaining close working 
relationships with key management personnel at regulatory authorities, 
airports and airport authorities worldwide.  As the market for certified 
explosive detection technology expands, the Company intends to supplement its 
sales and marketing capability by adding sales personnel in the U.S. and in 
Asia, enhancing customer support capabilities in Europe through the addition 
of systems integration expertise, and continuing to educate governmental 
entities worldwide about the benefits of certified detection and the 
advantages of the CTX 5000.

    LEVERAGE TECHNOLOGY EXPERTISE TO ENTER NEW MARKETS FOR DETECTION.  The 
Company believes that installations of advanced automated explosive detection 
systems at airports will accelerate the adoption of this technology for 
additional aviation applications such as screening of carry-on baggage and 
trailer-mounted mobile units for inspections at remote location, as well as 
for other security applications, including the detection of drugs, the 
protection of government and private facilities, and the screening of mail.  
Since the amount of government money spent in drug interdiction efforts far 
surpasses the amount spent for the development of EDS technology, the Company 
believes that drug detection applications afford significant market 
opportunities for the application of the Company's certified detection 
technology.  The Company believes that its leadership in high detection 
technology will be a competitive advantage as these markets develop.

    PURSUE STRATEGIC RELATIONSHIPS AND ACQUISITIONS.  From time to time the 
Company reviews strategic relationship opportunities, including potential 
acquisitions, that would complement its existing product offerings, augment 
its market coverage, enhance its technological capabilities or otherwise 
offer growth opportunities.  The Company believes that the CTX 5000 is suited 
to the integration of applications which are direct extensions of its 
strength in explosive detection technology.  Pursuant to this strategy, the 
Company has entered a strategic relationship with EG&G Astrophysics for the 
development of an explosive detection system based upon a combination of the 
CTX 5000 as it currently exists and a pre-scanner based upon EG&G's x-ray 
scanning technology. See "--Product Development." In addition, the Company 
has made a minority equity investment in Quantum Magnetics, Inc. ("Quantum") 
and, in connection with such investment, Quantum has agreed to certain 
limitations on its ability to license or transfer certain of its explosives 
detection technology. See "--Recent Developments."

PRODUCT DEVELOPMENT

    The Company considers research and development to be a vital part of its 
operating discipline and continues to dedicate substantial resources to 
research and development to enhance the performance, functionality and 
reliability of its CTX 5000 hardware and software.  In particular, the 
Company recognizes the need to improve certain of its system capabilities, 
specifically related to throughput and gantry size, in order to accommodate 
the 

                                      5.
<PAGE>

breadth of market potential for EDS technology.  At March 31, 1997 the 
Company had 38 full time employees engaged in research and development 
activities, and also was using the services of nine specialized contract 
employees and consultants in this area. During the years ended December 31, 
1996, 1995 and 1994, respectively, the Company spent $4.3 million, $2.5 
million and $2.4 million on research and development activities, of which 
$1.5 million, $587,000 and $720,000, respectively, was funded by the FAA under 
development contracts and grants.  In order to fulfill the objectives of its 
growth strategy, the Company intends to continue to invest heavily in product 
development. 

    The Company's development efforts under the current FAA research grant 
are primarily focused on increasing the speed (throughput) and decreasing the 
manufacturing cost of the CTX 5000.  The Company is also developing, in 
conjunction with the FAA, improvements to the user interface, inspection 
algorithms, and operator on line testing techniques.  Any such modifications 
or updated versions of the CTX 5000 may require FAA approval in order to 
retain certification or may require re certification.  There can be no 
assurance that any such modifications will be approved or, if required, 
certified by the FAA. The Company believes that its long term success will 
depend in part upon the ability to manufacture an EDS that meets or exceeds 
the throughput standards of the FAA Final Certification Criteria without 
being combined with another unit. 

    The U.S. Government currently plays an important role in funding the 
development of EDS technology and sponsoring its deployment in U.S. airports. 
As of March 31, 1997, the Company had received $8.0 million from FAA grants 
and contracts, and expects to receive an additional $2.7 million for further 
throughput enhancement and cost reduction activities in 1997.  The Company is 
also aware that Lockheed Martin Corporation was awarded a grant of 
approximately $8.5 million in January, 1996 from the FAA for the design and 
development of a CT based EDS over a two year period.  There can be no 
assurance that additional research and development funds from the FAA will 
become available in the future or that the Company will receive any such 
additional funds.  In addition, the grant to Lockheed Martin Corporation and 
any future grants to the Company's other competitors may improve such 
competitors' ability to develop and market high detection EDS technology and 
cause the Company's customers to delay any purchase decisions, which could 
have a material adverse effect on the Company's ability to market the CTX 
5000.

    In November 1996, the Company entered into a Research and Development 
Agreement with EG&G Astrophysics ("EG&G") whereby the parties agreed to 
attempt to jointly develop and introduce to the EDS marketplace a system 
combining the two companies' products into an automatic, high throughput, 
high detection system.  The terms of the agreement provide for the parties to 
equally fund and jointly own the technology developed in the development 
program.  Either party may terminate the agreement for cause, or may 
terminate the agreement without cause (which in certain cases would result in 
a penalty) on 60 days' notice.  The agreement terminates in May 1998. This 
alliance targets the furtherance of the Company's strategy to increase 
throughput and provide a better solution than multi level detection systems 
currently in use in certain airports in the United Kingdom and Asia which, 
the Company believes, represent a significant compromise in detection and 
increase the cost and complexity of the baggage handling system.  There can 
be no assurance that the Company and EG&G will be able to develop such an EDS 
in a cost effective manner or at all. In connection with the collaboration, 
an affiliate of EG&G made an equity investment of $2.0 million in the Company.

RECENT DEVELOPMENTS 

    In April 1997, the Company made an equity investment of approximately 
$1.2 million, representing an approximate 10% ownership interest, in Quantum 
Magnetics, Inc. ("Quantum"). The equity investment entitles the Company to 
designate one member to serve on Quantum's board of directors and entitles 
the Company to certain registration, first refusal and other rights. In 
connection with the equity investment, for the period extending through 
December 1997, Quantum has agreed not to license or transfer its technology 
related to explosive detection for use in explosives or drug detection 
without consent of the Company except in connection with the sale of Quantum 
or transfer of substantially all of its assets.

    On March 14, 1997, the Company filed a registration statement with the 
Securities and Exchange Commission in connection with a proposed underwritten 
public offering of shares of its Common Stock.  On May 14, 1997, 1,875,000 of 
such shares were sold by the Company with resulting net proceeds to the 
Company estimated at $20.5 million. The Company intends to use the net 
proceeds from the offering to purchase capital equipment and undertake 
facility improvements, to fund research and development, and for working 
capital and other general corporate purposes and to pursue possible 
acquisitions. The Company did not receive any proceeds from the sale of 
Common Stock by the selling stockholders.

CUSTOMERS

    In order to capitalize on the global opportunity for deployment of 
explosive detection technology for civil aviation, the Company focuses on 
three important markets: (i) installations at key U.S. airports, (ii) 
installations at new airports under construction worldwide and (iii) 
installations at international airports.  

                                       6.
<PAGE>

    The following is a list of the airports which are employing the Company's 
CTX 5000 technology or have a CTX 5000 on order as of March 31, 1997: 

<TABLE>
<CAPTION>

             AIRPORT                               LOCATION                         OPERATED BY
             -------                               --------                         -----------
<S>                                            <C>                          <C>
John F. Kennedy International (1 unit)         New York, New York           El Al Israel 
Hartsfield International (2 units)             Atlanta, Georgia             Delta Airlines
San Francisco International (1 unit)           San Francisco, California    United Airlines
London Heathrow (4 units)                      London, England              British Airport Authority
Manchester International (10 units)(2 UNITS)   Manchester, England          Manchester Airport
Brussels National (1 unit)                     Brussels, Belgium            Brussels Airport
Narita International (1 unit)                  Tokyo, Japan                 A distributor
Ben Gurion International (5 units)(1 UNIT)     Tel Aviv, Israel             Israel Airports Authority
Nino Aquino International (2 units)            Manila, Philippines          Northwest Airlines
King Khaled International (1 UNIT)             Riyadh, Saudi Arabia         A distributor
Subang Kuala Lumpur International (2 units)    Kuala Lumpur, Malaysia       Kuala Lumpur Airport
(4 UNITS)
Various (4 UNITS)                              Various                      El Al Israel Airlines
French Airports (2 units)(10 UNITS)(1)         France                       Direction Generale de L'Aviation Civile
U.S. Airports (5 units)(10 UNITS)(1)(2)        United States                Various U.S. Airlines

</TABLE>
------------------

    ITALICIZED ITEMS DENOTE NUMBER OF UNITS ON ORDER BUT NOT YET SHIPPED.
    (1) For security reasons, the locations remain undisclosed.
    (2) Under the FAA Contract.

    In December 1996, as an extension of legislation enacted upon the 
recommendation of the Gore Commission, the Company received an order for 54 
CTX 5000 systems from the FAA.  Under the terms of the FAA contract, these 
systems are to be shipped during 1997 to America's busiest airports.  As of 
March 31, 1997, five of these systems have been shipped.  For reasons of 
security, the FAA will not divulge the deployment schedule or locations of 
the remaining systems at this time.  In addition, the government has the 
option to purchase up to 46 additional systems for 1998, bringing the total 
purchase price under such contract, if such option is fully exercised, to 
$110.9 million.  The FAA may cancel this contract at any time and for any 
reason, in which case the FAA would only be obligated to pay for units 
delivered and to reimburse the Company for costs incurred and commitments 
made by the Company in order to fulfill the contract. 

    A majority of the CTX 5000 systems shipped to date have been installed 
since January 1996, and the Company's customers have only limited experience 
with the operation of the CTX 5000 in high volume airport operations.  Many 
of the factors necessary to make the overall baggage scanning system a 
success, such as the CTX 5000's integration with the baggage handling system, 
ongoing system maintenance and the performance of operators, are beyond the 
control of the Company.  In particular, once the CTX 5000 identifies a 
threat, the operator must make a determination whether the threat is actual 
or a false alarm and, therefore, whether or not to allow the bag to continue 
onto the aircraft. Unsatisfactory performance of operators can lead to 
reduced efficacy of the CTX 5000. The failure of the CTX 5000 to perform 
successfully in deployments, whether due to the limited experience of the 
Company's customers with the CTX 5000, operator error or any other reason, 
may have an adverse effect on the market's perception of the efficacy of the 
CTX 5000.

    As a result, the Company believes that customer service and support are 
critical to its success and has committed significant resources to these 
functions.  Accordingly, the Company provides a high level of customer 
support to assist in the site planning, installation and integration of the 
Company's products into its customer's facilities in addition to field 
service for maintaining the reliability of the Company's products once 
installed.  The Company's service organization includes customer service 
engineers, product application specialists, operator training engineers and 
technical support engineers.  As of March 31, 1997 the Company had 23 
individuals employed in customer service and support roles.  The Company 
typically hires and trains its own support staff throughout the world rather 
than relying on third party maintenance services.  In addition to providing 
generally a one year parts warranty, 

                                       7.
<PAGE>

the Company offers fee based primary and back up service contracts to its 
customers to provide system maintenance, ongoing technical support, 
documentation, training and, under full service contracts, periodic software 
releases. 

    The Company believes that operator qualification and training is as 
important to the explosives detection process as the CTX 5000's automated 
detection process.  In this regard, the Company has developed and provides in 
depth operator training and testing as a critical component of each sale and 
installation.  

    In any given fiscal year, the Company's revenues have principally 
consisted, and the Company believes will continue to consist, of orders of 
multiple units from a limited number of customers.  While the number of 
individual customers may vary from period to period, the Company is 
nevertheless dependent upon these multiple orders for a substantial portion 
of its revenues. There can be no assurance that the Company will obtain such 
multiple orders on a consistent basis.  During the first quarter of 1997, 
approximately $8.3 million, or 88.9%, of the Company's revenues were 
generated from sales to the Company's three largest customers. During the 
fiscal year ended December 31, 1996, revenues from the Company's six largest 
customers were approximately $14.0 million, or 88.4%, of the Company's 
revenues.  During the fiscal year ended December 31, 1995, revenues from the 
Company's three largest customers were approximately $6.8 million, or 75.0%, 
of the Company's revenues.  To date, all orders from United States customers 
have been entirely funded by the FAA, and the Company's largest sales 
contract to date, for 54 CTX 5000 systems, is with the FAA.  There can be no 
assurance that such funding or sales will continue in the future.

    Substantially all of the Company's customers to date have been public 
agencies or quasi public agencies.  In contracting with public agencies, the 
Company is subject to public agency contract requirements which vary from 
jurisdiction to jurisdiction and which are subject to budgetary processes and 
expenditure constraints.  Budgetary allocations for explosive detection 
systems are dependent, in part, upon governmental policies which fluctuate 
from time to time in response to political and other factors, including the 
public's perception of the threat of commercial airline bombings.  Many 
domestic and foreign government agencies have experienced budget deficits 
that have led to decreased capital expenditures in certain areas.  The 
Company's results of operations may be subject to substantial period to 
period fluctuations as a result of these and other factors affecting capital 
spending. Future sales to public agencies will depend, in part, on the 
Company's ability to meet public agency contract requirements, certain of 
which may be onerous or even impossible for the Company to satisfy.

SALES AND MARKETING

    The Company markets its products both directly through internal sales 
personnel and indirectly through authorized agents, distributors and systems 
integrators.  As of March 31, 1997, the Company employed a total of nine 
people in sales and marketing.  In North America, the Company markets its CTX 
5000 primarily through direct sales personnel, which as of March 31, 1997 
consisted of three individuals.  Internationally, the Company utilizes both a 
direct sales force and authorized agents to sell its products.  As of March 
1, 1997, the Company had five direct international sales personnel broadly 
covering Europe, Asia, and the Middle East and additional authorized agents 
representing the Company in specific countries.  For sales through its 
authorized agents and distributors, the Company generally is directly 
involved in developing proposal documents and negotiating contract terms. 

    During the quarter ended March 31, 1997 and the fiscal years ended 
December 31, 1996 and 1995, international sales represented 49.3%, 76.2% and 
89.2%, respectively, of the Company's revenues.  The Company, accordingly, is 
exposed to the risks of international business operations, including 
unexpected changes in regulatory requirements, changes in foreign control 
legislation, possible foreign currency controls, uncertain ability to protect 
and utilize its intellectual property in foreign jurisdictions, currency 
exchange rate fluctuations or devaluation, tariffs or other barriers, 
difficulties in staffing and managing foreign operations, difficulties in 
obtaining and managing vendors and distributors, and potentially negative tax 
consequences.  The Company is also subject to risks associated with 
regulations relating to the import and export of high technology products.  
The Company cannot predict whether quotas, duties, taxes or other charges or 
restrictions upon the importation or exportation of the Company's products in 
the future will be implemented by the United States or any other country. 

                                       8.
<PAGE>

    Support for the direct and indirect sales representatives is provided by 
product application specialists who assist in pre  and post sale support.  
Such support includes assistance in designing customer configurations, 
educating customers on the system and technology and supporting the 
implementation and integration process.  In addition, the Company provides 
its sales representatives with training, promotional literature, a multi 
media presentation, videos and competitive analysis. 

    The selling process often involves a team comprised of individuals from 
sales, marketing, engineering, customer service and support, and senior 
management.  The team frequently engages in a multi level sales effort 
directed toward a variety of constituents, including government regulators, 
the local airport operator or authority, systems and or conveyor integrators, 
individual airlines and airline operating committees.  The sales process of 
the CTX 5000 is often protracted due to the lengthy approval processes that 
typically accompany large capital expenditures.  The Company's revenues 
depend in significant part upon the decision of a government agency to 
upgrade and expand existing facilities, alter workflows and hire additional 
technical expertise in addition to procuring the CTX 5000, all of which 
involve a significant capital commitment as well as significant future 
support costs.  The sales cycle is also extended by the time required to 
manufacture the CTX 5000 and install and assimilate the CTX 5000.  Typically, 
six to twelve months may elapse between a new customer's initial evaluation 
of the Company's system and the execution of a contract. Another three months 
to a year may elapse prior to shipment of the CTX 5000 as the customer site 
is prepared and the CTX 5000 is manufactured.  During this period the Company 
expends substantial funds and management resources but recognizes no 
associated revenue.  Often, local government regulators become involved in 
the sales decision process or provide funds for the purchase.  For repeat 
orders from existing customers, the Company can often expedite the sales 
cycle by utilizing existing contracts and contract extensions and thereby 
avoiding lengthy procurement processes.  

COMPETITION

    The market for explosive detection systems is intensely competitive and 
is characterized by continuously developing technology and frequent 
introductions of new products and features.  The Company expects competition 
to increase as other companies introduce additional and more competitive 
products in the EDS market and as the Company develops additional 
capabilities and enhancements for the CTX 5000 and new applications for its 
certified technology.  Historically, the principal competitors in the market 
for explosive detection systems have been InVision, Vivid Technologies, Inc., 
EG&G Astrophysics, Heimann Systems GmbH, Thermedics Detection Inc., and 
Barringer Technologies Inc.  Each of these competitors provides EDS solutions 
and products for use in the inspection of checked luggage, although to date 
only the Company's CTX 5000 has been certified by the FAA.  The Company is 
aware of certain major corporations competing in other markets that intend to 
enter the EDS market.  In particular, in January 1996 Lockheed Martin 
Corporation received a grant in the amount of approximately $8.5 million from 
the FAA for the design and development of a CT based EDS over a two year 
period.  Announcements of currently planned or other new products may cause 
customers to delay their purchasing decisions for EDS products, which could 
have a material adverse effect on the Company's business, financial condition 
and results of operations. Each of the Company's competitors may have 
substantially greater financial resources than the Company.  There can be no 
assurance that the Company will be able to compete successfully with its 
competitors or with new entrants to the EDS market. 

    The Company believes that its ability to compete in the EDS market is 
based upon such factors as: product performance, functionality, quality and 
features; quality of customer support services, documentation and training; 
and the capability of the technology to appeal to broader applications beyond 
the inspection of checked baggage.  Although the Company believes that the 
CTX 5000 is superior to its competitors' products in its explosive detection 
capability and accuracy, the CTX 5000 must also compete on the basis of 
price, throughput, the ability to handle all sizes of baggage, and the ease 
of integration into existing baggage handling systems.  Certain of the 
Company's competitors may have an advantage over the Company's existing 
technology with respect to these factors.  Currently, the CTX 5000 has an 
average selling price of approximately $1.0 million, compared to 
substantially lower prices for systems offered by the Company's competitors; 
has a throughput rate of approximately 300 bags per hour ("bph"), compared to 
rates claimed to exceed 1,000 bph by certain of the Company's competitors; 
has a gantry size which limits the ability of the unit to accept all sizes of 
baggage; and requires that the baggage remain 

                                       9.
<PAGE>

still while being scanned, making it difficult to integrate into the 
continuously moving baggage handling systems found in most airports.  There 
can be no assurance that the Company will be successful in convincing 
potential customers that the CTX 5000 is superior to other systems given all 
of the necessary performance criteria, that new systems with comparable or 
greater performance, lower price and faster or equivalent throughput will not 
be introduced, or that, if such products are introduced, customers will not 
delay or cancel existing or future orders for the Company's system.  Further, 
there can be no assurance that the Company will be able to enhance the CTX 
5000 to better compete on the basis of cost, throughput, accommodation of 
baggage size and ease of integration, or that the Company will otherwise be 
able to compete successfully with existing or new competitors.

BACKLOG

    The Company measures its backlog of system revenues as orders for which 
contracts or purchase orders have been signed, but which have not yet been 
shipped and for which revenues have not yet been recognized.  The Company 
includes in its backlog only those customer orders which are scheduled for 
delivery within the next 18 months.  The Company typically ships its products 
within three to twelve months after receiving an order.  However, such 
shipments may be impacted by delays which occur in the delivery of components 
to the Company or customers' readiness to accept delivery for reasons of site 
preparation or otherwise.  At March 31, 1997, the Company's system revenues 
backlog was approximately $68.6 million, and at March 31, 1996, the Company's 
system revenues backlog was approximately $7.7 million. 

    A majority of the Company's backlog as of March 31, 1997 is 
expected to be shipped during the current fiscal year.  Any failure of the 
Company to meet an agreed upon schedule could lead to the cancellation of the 
related order.  Variations in the size, complexity and delivery requirements 
of the customer order may result in substantial fluctuations in backlog from 
period to period.  The Company believes that it is important for competitive 
reasons and to better satisfy customer requirements to reduce order lead 
times and expects that the Company's backlog may decrease on a relative basis 
over time.  In addition, all orders are subject to cancellation or delay by 
the customer and, accordingly, there can be no assurance that such backlog 
will eventually result in revenues.  For these reasons, the Company believes 
that backlog cannot be considered a meaningful indicator of the Company's 
performance on an annual or quarterly basis. 

MANUFACTURING

    The Company seeks to focus its manufacturing resources on activities 
which emphasize the Company's core competencies and distinctive value.  The 
Company's manufacturing operations consist primarily of: materials 
management; assembly, test and quality control of parts and components 
subassemblies; and final system testing.  Using the Company's designs and 
specifications, subcontractors assemble mechanical and electrical sub 
components.  The Company performs final assembly and testing of systems, 
including configuration to customers orders and testing with current release 
software, prior to shipment.  The Company's manufacturing organization has 
expertise in mechanical, electrical, electronic and software assembly and 
testing.  In addition, because quality and reliability over the life of the 
Company's products are vital to customer satisfaction and repeat purchases, 
the Company believes its quality assurance program to be a key component of 
its business strategy. 

    The Company generally purchases major contracted assemblies from single 
source suppliers in order to ensure high quality, prompt delivery and low 
cost. The Company reviews its single source procurements on a case by case 
basis and began to qualify second sources for certain contracted assemblies 
in 1996.  The Company purchases components, materials and electro-mechanical 
subsystems from single source suppliers pursuant to purchase orders placed 
from time to time in the ordinary course of business and has no guaranteed 
supply arrangements with such suppliers.  Moreover, in view of the high cost 
of many of these components, the Company does not maintain significant 
inventories of some necessary components.  If the Company's suppliers were to 
experience financial, operational, production or quality assurance 
difficulties, the supply of components to the Company would be reduced or 
interrupted.  Although to date the Company has not experienced any 
significant delays in obtaining any of its single source assemblies, there 
can be no assurance that the Company will not face shortages of one or more 
of these systems in the future.

                                      10.
<PAGE>

    The Company outsources certain manufacturing processes, including 
standard and build to print fabricated parts such as mechanical 
subassemblies, sheet metal fabrication, cables and assembled printed circuit 
boards.  This strategy enables the Company to leverage product development, 
manufacturing and management resources while retaining greater control over 
product delivery, final product configuration and timing of new product 
introductions, all of which the Company believes are critical to exceeding 
customer expectations.  The inability of the Company to develop alternative 
sources for single or sole source components, to find alternative third party 
manufacturers or subassemblers, or to obtain sufficient quantities of these 
components could result in delays or interruptions in product shipments.

    The Company is currently producing approximately four systems per month 
and has the capacity to accommodate production of over six systems per month 
in its current facility.  In February 1997, the Company entered into a lease 
agreement for a new headquarters and manufacturing facility.  The new 
facility is expected to be outfitted for occupancy in July 1997.  The new 
facility is expected to have an initial capacity in excess of 15 systems per 
month.  The Company's plans call for production levels which may be in excess 
of its current facility's capacity.  Any delays in the availability of the 
new facility for the production of CTX 5000 systems could cause delays in 
shipments of such systems to customers, which could have a material adverse 
effect on the Company's business, financial condition and results of 
operations.  See "--Business Risks--Limited Manufacturing Experience; 
Management of Growth" and "Properties."

INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS

    The Company's performance depends in part upon its proprietary 
technology. In the United States, the Company relies upon patents, copyrights 
and trade secrets for the protection of the proprietary elements of the CTX 
5000 and the Company's CT technology.  There can be no assurance, however, 
that the Company could enforce such patents, trade secrets or copyrights.  
The Company has two United States patents for automatic concealed object 
detection systems using a pre scan stage which expire in the years 2010 and 
2011 (the "Patents"). There can be no assurance that the Patents would be 
effective in preventing CT-based competition.  In accordance with certain 
Federal Acquisition Regulations included in the Company's development 
contract, dated September 27, 1991, with the FAA (the "FAA R&D Contract"), 
the United States Government has rights to use certain of the Company's 
proprietary technology developed after the award of the FAA R&D Contract and 
funded by the FAA R&D Contract.  The U.S. Government may use such rights to 
produce or have produced for the U.S. Government competing products using the 
Company's CT technology.  In the event that the U.S. Government were to 
exercise these rights, the Company's exclusivity in supplying the U.S. 
Government with certified CT based explosive detection systems could be 
materially adversely affected.  

    The Company generally enters into confidentiality agreements with each of 
its employees, and on a case-by-case basis enters into similar agreements 
with distributors, customers, and potential customers. In addition, the 
Company limits access to distribution of its software, documentation and 
other proprietary information.  There can be no assurance that these 
agreements will not be breached, that the Company will have adequate remedies 
for any breach, or that the Company's trade secrets will not otherwise become 
known to or independently developed by others.  Outside the United States, 
the time period for filing a foreign counterpart of the Patent has expired, 
and the Company has not sought or obtained patent protection (except to the 
extent of licenses held under patents owned by Imatron Inc. ("Imatron"), and 
has relied to date primarily on software copyrights and trade secrets for the 
protection of its proprietary technology.  The absence of a foreign 
counterpart to the Patent could adversely affect the Company's ability to 
prevent a competitor from using technology similar to technology used in the 
CTX 5000.  There can be no assurance that the steps taken by the Company to 
protect its proprietary technology will be adequate or that its competitors 
will not be able to develop similar, functionally equivalent or superior 
technology. 

                                      11. 

<PAGE>

    The Company in the past has received, and may from time to time in the 
future may receive, communications from third parties alleging infringements 
by the Company or one of its suppliers of patents or other intellectual 
proprietary rights owned by such third parties.  There can be no assurance 
that any infringement claims (or claims for indemnification resulting from 
infringement claims against third parties, such as customers) will not be 
asserted against the Company.  If the Company's product is found to infringe 
a patent, a court may grant an injunction to prevent making, selling or using 
the product in the applicable country.  Protracted litigation may be 
necessary to defend the Company against alleged infringement of others' 
rights.  Irrespective of the validity or success of such claims, defense of 
such claims could result in significant costs to the Company and the 
diversion of time and effort by management, either of which by itself could 
have a material adverse effect on the business, financial condition and 
results of operations of the Company. Further, adverse determinations in such 
litigation could result in the Company's loss of proprietary rights, subject 
the Company to significant liabilities (including treble damages in certain 
circumstances), or prevent the Company from selling its products.  If 
infringement claims are asserted against the Company, the Company may seek to 
obtain a license of such third party's intellectual property rights, which 
may not be available under reasonable terms or at all. In addition, 
litigation may be necessary to enforce patents issued to or licensed 
exclusively to the Company and protect trade secrets or know how owned or 
licensed by the Company and, whether or not the Company is successful in 
defending such intellectual property, the Company could incur significant 
costs and divert considerable management and key technician time and effort 
with respect to the prosecution of such litigation.

    The Company also holds an exclusive, worldwide, perpetual and fully-paid 
license from Imatron (obtained in connection with the formation of the 
Company) under Imatron's patents and know how to develop, manufacture and 
sell (a) systems for the inspection of mail, freight, parcels and baggage, 
and (b) compact medical scanner products for military field applications.  
The Company, in exchange, granted to Imatron an exclusive, worldwide, 
perpetual and fully-paid license under the Company's patent or future patents 
and know how to permit Imatron to utilize such technology in medical scanner 
products (other than compact medical scanner products for military field 
applications).  Imatron is a manufacturer of medical scanning systems and 
holds a portfolio of CT patents. 

    While the Company believes that its intellectual property rights are 
valuable, the Company also believes that because of the rapid pace of 
technological change in the industry, factors such as innovative skills, 
technical expertise, the ability to adapt quickly to new technologies and 
evolving customer requirements, product support, and customer relations are 
of greater competitive significance. 

                                     12.

<PAGE>

EXECUTIVE OFFICERS OF THE REGISTRANT

   The following sets forth certain information regarding the Company's 
executive officers as of March 31, 1997:


NAME                       AGE                  POSITION
----                       ---                  --------
Dr. Sergio Magistri.....   44   President, Chief Executive Officer and Director
Sauveur Chemouni........   43   Vice President, Engineering
Curtis P. DiSibio.......   40   Vice President and Chief Financial Officer
David Pillor............   42   Senior Vice President, Sales and Marketing
Dr. Fredrick L. Roder...   49   Vice President, Federal Systems
Dr. Benno Stebler.......   44   Vice President, Manufacturing
Stephen Wolff...........   38   Vice President, Marketing & Product Development


    DR. SERGIO MAGISTRI has served as President, Chief Executive Officer and 
Director of the Company since December 1992.  From June 1991 to November 
1992, he was a Project Manager with AGIE, Switzerland, a manufacturer of high 
precision tooling equipment, responsible for all aspects of a family of new 
products for high precision electro erosion machining with sub micron 
precision. From 1988 to June 1991, Dr. Magistri was a consultant to high 
technology companies, including FI.M.A.I. Holding, S.A. As a consultant to 
FI.M.A.I., Dr. Magistri was involved in the formation of the Company and the 
development of its business plan and of its technology. From 1983 to 1988, 
Dr. Magistri held various positions with Imatron Inc. ("Imatron"), a CT 
medical scanner company, including as an Engineering Physicist and Manager of 
Advanced Reconstruction Systems, and Director of Computer Engineering. Dr. 
Magistri holds a degree in Electrical Engineering and a doctorate in 
Biomedical Engineering from the Swiss Institute of Technology, Zurich, 
Switzerland. 

    SAUVEUR CHEMOUNI joined the Company in 1990 as Manager and from January 
1994 to September 1995 served as Director of Engineering.  He has served as 
Vice President of Engineering since September 1995. From 1988 to 1990, he was 
with Imatron, where he was instrumental in the development of the Company's 
original EDS capability. From 1983 to 1988, he was the owner of a computer 
graphics company. Mr. Chemouni holds a degree in physics and a Masters degree 
in Computer Sciences from Supelec, Paris, France. 

    CURTIS P. DISIBIO has served as Vice President, Finance and 
Administration of the Company since April 1991 and Chief Financial Officer 
since March 1993. From 1980 to 1986, Mr. DiSibio worked in public accounting. 
In 1986 Mr. DiSibio served as controller of Trilogy Systems Corporation 
("Trilogy"), a development stage mainframe computer company, and was involved 
in the sale of Trilogy's operations to Digital Equipment Corporation. From 
1987 to 1990, Mr. DiSibio held various positions including Treasurer and 
Chief Financial Officer of ELXSI Corporation, a publicly traded mini super 
computer company which Trilogy had acquired. Mr. DiSibio received a Masters 
degree in Business Administration from Santa Clara University. 

    DAVID M. PILLOR joined the Company in July 1994 as Vice President, Sales 
and Marketing, and has served as Senior Vice President, Sales and Marketing 
since November 1995. From 1988 to July 1994, Mr. Pillor held various 
positions including Area Sales Manager, National Sales Manager and Vice 
President of Sales of Technomed International, a medical products company. 
Mr. Pillor holds a Bachelor of Science degree in Chemistry from the 
University of Maryland. 

    DR. FREDRICK L. RODER has served as Vice President, Federal Systems, of 
the Company since January 1997, following the acquisition of Imatron Federal 
Systems, Inc. ("IFS") by the Company. From June 1991 to December 1996, he 
served as President of IFS and as Prime Contractor and Principal Investigator 
on FAA research and development contracts. From 1986 until 1991, he served as 
Director, New Product Development, of Imatron. He holds a Bachelor of Science 
degree in Physics from City College of New York, a Masters degree in Physics 
from Yeshiva University and a doctorate in Nuclear Science and Engineering 
from Catholic University of America. 


                                      13.
<PAGE>


    DR. BENNO STEBLER joined the Company in May 1991 as Vice President, 
Engineering, and has served as Vice President, Manufacturing, of the Company 
since September 1995. From 1989 to 1991, Dr. Stebler served as Staff Engineer 
at Toshiba America, a consumer electronics company. From 1986 to 1989, Dr. 
Stebler served in various positions at Imatron including Software Manager of 
the Compact Medical Scanner, a predecessor to the CTX 5000. Dr. Stebler holds 
a diploma of Electrical Engineering and a doctorate in Biomedical Engineering 
from the Swiss Institute of Technology, Zurich, Switzerland. 

    STEPHEN WOLFF joined the Company in 1990 first as Manager and then as 
Director, Marketing & Product Development, and has served as Vice President, 
Marketing & Product Development, of the Company since October 1995. From 1981 
to 1990, Mr. Wolff held various positions at Science Applications 
International, Corp., a government research contractor, including Project 
Coordinator for development of a Prototype Thermal Neutron Analysis explosive 
detection system. Mr. Wolff was also principal investigator for an FAA 
sponsored testing program for weapons detection technology. Mr. Wolff holds a 
Bachelor of Science degree in Chemical Engineering from Imperial College, 
London, England and a Masters degree in Chemical Engineering from Stanford 
University. 

EMPLOYEES

    As of March 31, 1997, the Company employed 150 people, of whom 38 were 
primarily engaged in research and development activities, 30 in marketing and 
sales, customer support and field service, 23 in manufacturing and 22 in 
administration and finance. In addition, the Company utilized the services of 
37 full time consultants and temporary employees in 1996. Management believes 
that the Company's relationship with its employees is good. 

    The Company's performance depends in part on the expertise of certain 
technical personnel with skills in the disciplines of x-ray physics, image 
reconstruction and expert systems design. In addition, much of the Company's 
proprietary technology is known only by certain technical employees and might 
be unavailable should such individuals leave the Company. The number of 
scientists qualified to perform the development required by the Company is 
extremely limited. 

BUSINESS RISKS

HISTORY OF LOSSES; NO ASSURANCE OF PROFITABILITY

    The Company commenced operations in September 1990, remained in the 
development stage through 1994 and received its first revenues from product 
sales in the first quarter in 1995.  The Company has experienced net losses 
for each quarter and year since inception through December 31, 1996, and, as 
of March 31, 1997, had an accumulated deficit of approximately $18.9 
million.  There can be no assurance that the Company will achieve 
profitability on a quarterly or annual basis or, if it is achieved, that 
profitability can be maintained.  The Company expects to expend its 
manufacturing, research and development, sales and marketing, and 
administrative capabilities.  The anticipated increase in the Company's 
operating expenses caused by this expansion could have a material adverse 
effect on the Company's business, financial condition and results of 
operations if revenues do not increase at an equal or greater rate.

FLUCTUATIONS IN OPERATING RESULTS

    The Company's past operating results have been, and its future operating 
results will be, subject to fluctuations resulting from a number of factors, 
including: the timing and size of orders from, and shipments to, major 
customers; budgeting and purchasing cycles of its customers; delays in 
product shipments caused by custom requirements of customers or ability of 
the customer to accept shipment; the timing of enhancements to the CTX 5000 
by the Company or new products by its competitors; changes in pricing 
policies by the Company, its competitors or suppliers, including possible 
decreases in average selling prices of the CTX 5000 in response to 
competitive pressures; the proportion of revenues derived from competitive 
bid processes; the mix between sales to domestic and international customers; 
market acceptance of enhanced versions of the CTX 5000; the availability 


                                      14.
<PAGE>

and cost of key components; the availability of manufacturing capacity; and 
fluctuations in general economic conditions. The Company also may choose to 
reduce prices or to increase spending in response to competition or to pursue 
new market opportunities, all of which may have a material adverse effect on 
the Company's business, financial condition and results of operations. The 
Company's systems revenues in any period are derived from sales of multiple 
CTX 5000 systems to a limited number of customers and are recognized upon 
shipment which, in view of the high cost of one CTX 5000, causes minor 
variations in the number of orders, or the timing of shipments, to 
substantially affect the Company's quarterly revenues. Because a significant 
portion of the Company's quarterly operating expenses are, and will continue 
to be, relatively fixed in nature, such revenue fluctuations will cause the 
Company's quarterly and annual operating results to vary substantially. 
Accordingly, the Company believes that period to period comparisons of its 
results of operations are not meaningful and cannot be relied upon as 
indications of future performance.  Because of all of the foregoing factors, 
the Company's operating results may be below the expectations of public 
market analysts and investors in some future quarters, which would likely 
result in a decline in the trading price of the Common Stock.

SINGLE PRODUCT; UNCERTAINTY OF MARKET ACCEPTANCE

    The CTX 5000 currently is the only product offered by the Company and the 
Company derives substantially all of its revenues from the sale of CTX 5000 
units. The Company's orders to date have been received from a limited number 
of customers and the substantial majority of these have been from a single 
customer, the FAA. The commercial success of the CTX 5000 will depend upon 
its acceptance by domestic and international airports, government agencies 
and airlines as a useful and cost effective alternative to less expensive, 
higher throughput (i.e. bags per hour) competing products employing different 
technologies. The large capital commitment (approximately $1.0 million) 
required to purchase the CTX 5000 may limit the marketability of the CTX 
5000. In addition, the Company's failure to compete successfully with respect 
to throughput, the ability to scan all sizes of baggage, the ease of 
integration of the CTX 5000 into existing baggage handling systems and other 
factors could delay, limit or prevent market acceptance of the CTX 5000. 
Moreover, the market for EDS technology is largely undeveloped, and the 
Company believes that the overall demand for EDS technology will depend 
significantly upon public perception of the risk of terrorist attacks. There 
can be no assurance that the public will perceive the threat of terrorist 
bombings to be substantial or that the airline industry and governmental 
agencies will actively pursue EDS technology. As a result, there can be no 
assurance the Company will be able to achieve market penetration, revenue 
growth or profitability. See "--Competition" and "--Industry Background." 

LIMITED MANUFACTURING EXPERIENCE; MANAGEMENT OF GROWTH

    As of March 31, 1997, the Company had produced a total of 40 CTX 5000 
systems and had not sustained then current production levels for any 
significant period of time. As a result of the FAA's recent order of 54 CTX 
5000 systems, the Company is in the process of substantially increasing its 
rate of manufacture of the CTX 5000, which has placed significant demands on 
the Company's management, working capital and financial and management 
control systems. Failure to upgrade the Company's operating, management and 
financial control systems when necessary, or difficulties encountered during 
such upgrades, could have a material adverse effect on the Company's 
business, financial condition and results of operations. The success of the 
increase in production capability will depend in part upon the Company's 
ability to continue to improve and expand its engineering and technical 
resources and to attract, retain and motivate key personnel. The failure of 
the Company to establish such production capability or to increase its 
revenues sufficiently to compensate for the increase in operating expenses 
resulting from current or any future expansion would have a material adverse 
effect on the Company's business, financial condition and results of operations.

    To accommodate the recent increase in the manufacturing rate, the Company 
has entered into a lease for a new, substantially larger, manufacturing 
facility. The ability of the Company to successfully transition its 
manufacturing operation to this new facility is subject to a variety of 
factors, including the ability to install appropriate equipment, adapt to a 
new working environment, and quickly and efficiently move to the new 
facility. The operations of this new facility will also require the Company 
to incur substantially larger fixed costs than it has experienced in the 
past. Unforeseen delays and complications that may arise in the transition to 
the new facility 


                                      15.
<PAGE>

which could interrupt the Company's manufacturing rate, failure of the FAA to 
perform under the December 1996 purchase contract, or failure to maintain an 
order rate sufficient to fully utilize this new manufacturing facility each 
could have a material adverse effect on the Company's business, financial 
condition and results of operations. See "--Customers," "--Manufacturing" and 
"Properties."

PRODUCT LIABILITY RISKS; RISK OF FAILURE TO DETECT EXPLOSIVES; 
AVAILABILITY OF INSURANCE

    The Company's business exposes it to potential product liability risks 
which are inherent in the manufacturing and sale of explosive detection 
systems. There are many factors beyond the control of the Company that could 
lead to liability claims, such as the reliability of the customer's 
operators, the training of the operators after the initial installation and 
training period, and the maintenance of the units by the customers. For these 
and other reasons, including software and hardware limitations and 
malfunctions of the CTX 5000, there can be no assurance that the systems will 
detect all explosives hidden in the luggage scanned. The Company does not 
believe that it would be liable for any such claims, but the cost of 
defending any such claims would be significant and any adverse determination 
may be in excess of the Company's insurance coverage. Moreover, the failure 
of the CTX 5000 to detect an explosive would also result in negative 
publicity which could have a material adverse effect on sales and may cause 
customers to cancel orders already placed, either of which could have a 
material adverse effect on the Company's business, financial condition and 
results of operations. Many of the Company's customers require the Company to 
maintain insurance at certain levels. The Company currently has product 
liability insurance in the amount of $150 million. There can be no assurance 
that additional insurance coverage, if required by customers or otherwise, 
could be obtained on acceptable terms, if at all. 

CONCENTRATION OF OWNERSHIP; CONTROL BY MANAGEMENT

    As of March 31, 1997, the Company's principal stockholder, HARAX Holding, 
S.A. ("HARAX"), and its affiliates hold approximately 35.1% of the Company's 
Common Stock, and the present directors and executive officers of the Company 
and their affiliates, in the aggregate, beneficially own 17.8% of the 
outstanding Common Stock, in each case including shares issuable pursuant to 
stock options exercisable within 60 days of the date hereof.  Consequently, 
HARAX together with the Company's directors and executive officers, acting in 
concern, have the ability to significantly affect the election of the 
Company's directors and have a significant effect on the outcome of 
corporation actions requiring stockholder approval.  In addition, HARAX, 
acting along, has the power to significantly affect matters relating to the 
Company's affairs and business.

ITEM 2.   PROPERTIES.

    The Company's  principal administrative, marketing, development and 
manufacturing facility is located in Foster City, California and consists of 
approximately 27,000 square feet under a lease which expires in October 1998. 
The Company has an option to extend the lease for one year. The base rent 
under this lease is approximately $300,000 per year. In March 1997, the 
Company entered into a lease for new principal corporate offices and 
manufacturing facilities in Newark, California, which consists of 
approximately 95,000 square feet under a lease which expires in May 2007. The 
Company has an option to extend the lease for five years. The initial base 
rent under this lease is approximately $672,000 per year. The Company 
anticipates relocating to this new facility upon completion of tenant 
improvements, currently scheduled for June 1997. Management believes that the 
new facilities will be sufficient to satisfy the Company's administrative and 
manufacturing needs for the foreseeable future. 


                                      16.
<PAGE>

    The Company's manufacturing facility is currently producing approximately 
four systems per month and has the capacity to accommodate production of over 
six systems per month. The new facility is expected to have a capacity in 
excess of 15 systems per month before the implementation of activities for 
manufacturing cycle time reduction and multiple shifts. 

ITEM 3.   LEGAL PROCEEDINGS.

    The Company is not a party to any material legal proceedings.

ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

    Not applicable.

                                      17.
<PAGE>

                                       PART II.


ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

MARKET INFORMATION

    On April 23, 1996, the Common Stock commenced trading on the Nasdaq 
SmallCap Market under the symbol "INVN".  Prior to that date, there was no 
public market for the Common Stock.  The following table sets forth, for the 
periods indicated, the high and low bid quotations of the Common Stock as 
reported on the Nasdaq SmallCap Market giving effect to the Company's 2-for-1 
stock split effected on February 7, 1997 as if the stock split had occurred 
on April 23, 1996.  These over-the-counter quotations reflect inter-dealer 
prices, without retail markup, markdown or commission, and may not 
necessarily represent the sales prices in actual transactions.

                                                              THE NASDAQ
                                                            SMALLCAP MARKET
                                                          --------------------
                                                           HIGH          LOW  
                                                          -------      -------
     Fiscal 1996
        Second Quarter (from April 23, 1996)..........    $ 6 5/8       $5 5/8
        Third Quarter.................................    17 1/16        4 5/8
        Fourth Quarter................................    17 5/16       10 7/8

    On March 25, 1997, the last sale price of the Common Stock on the Nasdaq 
SmallCap Market was $16.00 per share.  On March 1, 1997 there were 176 
stockholders of record of Common Stock, and the Company believes its shares 
were held beneficially by approximately 4,000 owners on such date.  In 
connection with the Proposed Underwritten Offering, the Company has made 
application for inclusion of the Common Stock on the Nasdaq National Market.

DIVIDENDS

    The Company has never declared or paid cash dividends on its Common Stock 
and it is currently the intention of the Board of Directors not to pay cash 
dividends in the foreseeable future.  The Company plans to retain earnings, 
if any, to finance its operations.  In addition, the Company's bank credit 
facility prohibits the payment of dividends without the lender's consent.

RECENT SALES OF UNREGISTERED SECURITIES

    From January 1, 1996 through December 31, 1996, the Company sold and 
issued the following unregistered securities:

    (1)  On July 1, 1996, the Company issued 4,546 shares of Common Stock to 
Scot Land in consideration of a three way release among himself, the Company 
and the Italimprese Group. 

    (2)  On August 23, 1996, the Company issued 479,318 shares of Common 
Stock to Anaconda Opportunity Fund ("Anaconda") following the exercise of a 
warrant. The warrant was issued to a predecessor-in-interest to Anaconda in 
connection with a certain Bridge Loan and Security Agreement, dated as of 
December 28, 1995, entered into between the Company and Anaconda Partners, 
L.P. (the "Bridge Loan").  Under the terms of the warrant 454,544 shares were 
exercisable at a price of $4.40 per share and 63,636 shares were exercisable 
at a price of $5.50 per share.


                                      18.
<PAGE>


    (3)  In August 1996, the Company issued 38,862 shares to LEO Holdings, 
Inc. ("LEO") following exercise of a warrant originally issued to Anaconda in 
connection with the Bridge Loan and transferred to LEO. Under the terms of 
the warrant 34,090 shares were exercisable at a price of $4.40 per share and 
4,772 shares were exercisable at a price of $5.50 per share.

    (4)  On November 12, 1996, the Company issued 183,750 shares of Common 
Stock to EG&G International, Ltd. at a price of $10.88 per share. 

    (5)  On December 31, 1996, the Company issued 32,000 shares of Common 
Stock to Fredrick L. Roder in consideration of all of the outstanding common 
voting stock of Imatron Federal Systems, Inc. 

    The sales and issuances of securities described in paragraphs 1 through 5 
above were made to "Accredited Investors" as such term is defined under Rule 
501 of the Securities Act and were therefore deemed to be exempt from 
registration under the Securities Act by virtue of Section 4(2) and Rule 506 
of the Securities Act. 

    Appropriate legends are affixed to the stock certificates issued in the 
aforementioned transactions. Similar legends were imposed in connection with 
any subsequent sales of any such securities except sales of shares by LEO as 
resale of these shares was registered pursuant to a registration statement 
declared effective on June 7, 1996.  All recipients either received adequate 
information about the Registrant or had access, through employment or other 
relationships, to such information. 


                                    19.

<PAGE>

ITEM 6.  SELECTED FINANCIAL DATA

                      SELECTED CONSOLIDATED FINANCIAL DATA

<TABLE>
<CAPTION>
                                                                            YEAR ENDED DECEMBER 31,
                                                             -----------------------------------------------------
                                                               1992       1993       1994       1995       1996
                                                             ---------  ---------  ---------  ---------  ---------
                                                                     (In thousands, except per share data)
<S>                                                          <C>        <C>        <C>        <C>        <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
  Revenues.................................................  $      --  $      --  $      --  $   9,066  $  15,841
  Cost of revenues.........................................         --         --         --      6,777      9,736
                                                             ---------  ---------  ---------  ---------  ---------
    Gross profit...........................................         --         --         --      2,289      6,105
                                                             ---------  ---------  ---------  ---------  ---------
  Operating expenses:
    Research and development(1)............................        744      1,424      1,582      1,940      2,785
    Sales and marketing....................................        242        520        664      1,866      2,976
    General and administrative.............................      1,058      1,081      1,078      1,471      2,577
                                                             ---------  ---------  ---------  ---------  ---------
      Total operating expenses.............................      2,044      3,025      3,324      5,277      8,338
                                                             ---------  ---------  ---------  ---------  ---------
  Loss from operations.....................................     (2,044)    (3,025)    (3,324)    (2,988)(2) (2,233)(2)
  Interest expense.........................................       (162)      (288)      (410)      (338)    (1,511)(3)
  Other income, net........................................         10          6          7         34        172
                                                             ---------  ---------  ---------  ---------  ---------
  Net loss.................................................  $  (2,196) $  (3,307) $  (3,727) $  (3,292) $  (3,572)
                                                             ---------  ---------  ---------  ---------  ---------
                                                             ---------  ---------  ---------  ---------  ---------
  Net loss per share(4)....................................                                   $   (0.50) $   (0.44)
                                                                                              ---------  ---------
                                                                                              ---------  ---------
  Shares used in per share calculations(4).................                                       6,642      8,142
 
<CAPTION>
 
                                                                                 DECEMBER 31,
                                                             -----------------------------------------------------
                                                               1992       1993       1994       1995       1996
                                                             ---------  ---------  ---------  ---------  ---------
                                                                                (In thousands)
<S>                                                          <C>        <C>        <C>        <C>        <C>
CONSOLIDATED BALANCE SHEET DATA:
  Cash.....................................................  $     562  $     212  $   2,241  $   1,927  $   2,363
  Working capital (deficit)................................     (2,365)    (4,759)    (4,893)    (3,477)     7,380
  Total assets.............................................      1,804      1,950      4,646      7,316     15,256
  Long-term liabilities....................................         --         --         --         34        110
  Total stockholders' equity (deficit).....................     (1,696)    (3,983)    (4,224)    (2,522)     9,074
</TABLE>

 
------------------------------
(1) Net of amounts reimbursed by the FAA of $3.1 million, $1.5 million, 
    $821,000, $593,000, and $1.5 million, respectively, during 1992, 
    1993, 1994, 1995, and 1996. See Note 4 of Notes to Consolidated 
    Financial Statements.

(2) The Company recorded non-cash charges related to grants of stock options
    having exercise prices below the fair market value on the date of grant to
    employees and directors in the amounts of $369,000 and $489,000,
    respectively, in 1995 and 1996. See Note 8 of Notes to Consolidated
    Financial Statements.

(3) The Company recorded a non-cash charge resulting from amortization of a
    discount in connection with the Warrants in the amount of $1.3 million in
    1996. See Note 6 of Notes to Consolidated Financial Statements.

(4) See Note 2 of Notes to Consolidated Financial Statements for an explanation
    of the method used to compute per share amounts.


                                     20.

<PAGE>

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 
         RESULTS OF OPERATIONS

    THE FOLLOWING DISCUSSION MAY CONTAIN FORWARD-LOOKING STATEMENTS WHICH 
INVOLVE RISKS AND UNCERTAINTIES. WHEN USED IN THIS DISCUSSION, THE WORDS 
"ANTICIPATE," "BELIEVE," "ESTIMATE," AND "EXPECT" AND SIMILAR EXPRESSIONS AS 
THEY RELATE TO THE COMPANY OR ITS MANAGEMENT ARE INTENDED TO IDENTIFY SUCH 
FORWARD-LOOKING STATEMENTS. THE COMPANY'S ACTUAL RESULTS, PERFORMANCE OR 
ACHIEVEMENTS COULD DIFFER MATERIALLY FROM THE RESULTS EXPRESSED IN, OR 
IMPLIED BY, THESE FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD CAUSE OR 
CONTRIBUTE TO SUCH DIFFERENCES INCLUDE RISKS RELATED TO MARKET ACCEPTANCE OF 
THE COMPANY'S SINGLE PRODUCT, FLUCTUATIONS IN THE COMPANY'S QUARTERLY AND 
ANNUAL OPERATING RESULTS, THE LOSS OF ORDERS OF THE COMPANY'S PRODUCT, 
INCLUDING THE LOSS OF THE COMPANY'S MOST RECENT ORDER FROM THE FAA, LOSS OF 
ANY OF THE COMPANY'S SOLE SOURCE SUPPLIERS, INTENSE COMPETITION, RELIANCE ON 
LARGE ORDERS, CONCENTRATION OF THE COMPANY'S CUSTOMERS, RISKS RELATED TO THE 
LENGTHY SALES CYCLES FOR THE CTX 5000, BUDGETING LIMITATIONS OF THE COMPANY'S 
CUSTOMERS AND PROSPECTIVE CUSTOMERS, AND THE RISKS RELATED TO THE COMPANY'S 
LIMITED MANUFACTURING EXPERIENCE.

OVERVIEW

    InVision designs, manufactures and markets an explosive detection system 
based on advanced CT technology. The Company was formed in September 1990 to 
design and develop the CTX 5000 and remained in the development stage through 
December 1994. In March 1994, the Company received its first commercial order 
for a CTX 5000 system from the Brussels International Airport in Belgium, and 
since such time has received orders for a total of 107 systems, of which a 
total of 37 had been shipped as of March 31, 1997. For the fiscal year ended 
December 31, 1996, the Company had revenues of $15.8 million, and at March 31, 
1997 had orders in backlog in the amount of $68.6 million. 

    The Company considers research and development to be a vital part of its 
operating discipline and continues to dedicate substantial resources to 
research to enhance the performance, functionality and reliability of its CTX 
5000 hardware and software. At March 31, 1997, the Company had 38 full-time 
employees engaged in research and development activities, and also was using 
the services of 9 specialized contract employees and consultants in this 
area. Beginning in 1991, total research and development expenditures by the 
Company have been partially offset by amounts reimbursed by the FAA under 
development contracts and grants. The Company believes that investment in 
research and development in absolute dollars will increase substantially to 
meet its future needs regardless of the level of funding received from the 
FAA. During the year ended December 31, 1996, the Company spent $4.3 million 
on research and development activities, of which $1.5 million was funded by 
the FAA under development contracts and grants. To the extent that FAA 
contract and grant receipts decline in the future, research and development 
expenses borne by the Company would increase, and the Company expects that 
its results of operations would be adversely impacted. 

    In any given fiscal year, the Company's revenues have principally 
consisted, and the Company believes will continue to consist, of orders of 
multiple units from a limited number of customers. During the first quarter 
of 1997, approximately $8.3 million, or 88.9%, of the Company's revenues were 
generated from sales to the Company's three largest customers. During the 
fiscal year ended December 31, 1996, revenues from the Company's six largest 
customers were approximately $14.0 million, or 88.4%, of the Company's 
revenues. During the fiscal year ended December 31, 1995, revenues from the 
Company's three largest customers were approximately $6.8 million, or 75%, of 
the Company's revenues.

    The Company markets its products both directly through internal sales
personnel and indirectly through authorized agents, distributors and systems
integrators. In the United States, the Company markets its CTX 5000 primarily
through direct sales personnel. Internationally, the Company utilizes both a
direct sales force and authorized agents to sell its products. During the years
ended December 31, 1996 and 1995, international sales represented 76.2% and
89.2%, respectively, of the Company's revenues.

    The sales cycle of the CTX 5000 is often lengthy due to the protracted
approval process that typically accompanies large capital expenditures and the
time required to manufacture the CTX 5000 and install and assimilate the CTX
5000. Typically, six to twelve months may elapse between a new customer's
initial evaluation of the Company's system and the execution of a contract.
Another three months to a year may elapse prior to shipment of the CTX 5000 as
the customer site is prepared and the CTX 5000 is manufactured. During this
period the Company expends substantial funds and management resources but
recognizes no associated


                                     21.

<PAGE>

revenue. 

    The Company recognizes revenue on shipment unless extended acceptance
criteria exist, in which case revenue is recognized upon achievement of such
acceptance criteria. The Company typically requires significant customer
deposits and progress payments in advance of shipment on customer purchase
orders. Provision for estimated installation, training and warranty costs is
recorded at the time revenue is recognized. Systems typically carry a one-year
warranty.

RESULTS OF OPERATIONS

    The following table sets forth certain income and expenditure items from the
Company's consolidated statement of operations expressed as a percentage of
revenues for the periods indicated. Information for 1994 has been omitted as the
Company did not recognize revenue in that year.

<TABLE>
<CAPTION>
                                                                                 YEAR ENDED
                                                                                DECEMBER 31,
                                                                            --------------------
                                                                              1995       1996
                                                                            ---------  ---------
<S>                                                                         <C>        <C>
Revenues..................................................................      100.0%     100.0%
Cost of revenues..........................................................       74.8       61.5
                                                                            ---------  ---------
  Gross profit............................................................       25.2       38.5
                                                                            ---------  ---------
Operating expenses:
  Research and development................................................       21.4       17.6
  Sales and marketing.....................................................       20.6       18.8
  General and administrative..............................................       16.2       16.3
                                                                            ---------  ---------
    Total operating expenses..............................................       58.2       52.7
                                                                            ---------  ---------
Loss from operations......................................................      (33.0)     (14.2)
Interest expense..........................................................       (3.7)      (9.5)
Other income, net.........................................................        0.4        1.1
                                                                            ---------  ---------
Net loss..................................................................      (36.3)%     (22.6)%
                                                                            ---------  ---------
                                                                            ---------  ---------
</TABLE>

COMPARISON OF FISCAL YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

    REVENUES.  The Company's revenues are comprised of system revenues, which
include sales of the CTX 5000, accessories, installation and configuration, and
maintenance related to product support.

    Revenues increased by 74.7% to $15.8 million in 1996 from $9.0 million in
1995. The increase in 1996 revenues is attributable to increased sales of the
CTX 5000, reflecting a 63.6% increase in unit shipments to 18 units in 1996 from
11 units in 1995 and, to a lesser extent, changes in product configuration
leading to an increase in the average selling price per unit and sales of add-on
products to current customers. There were no revenues recorded in 1994.

    GROSS PROFIT.  Cost of revenues primarily consists of purchased materials
procured for use in the assembly of the Company's products, as well as
manufacturing labor, overhead and warranty costs. In any given period the
Company's gross profit may be affected by several factors, including product
configuration, location of the installation, and complexity of integration into
various airport environments.

    Gross profit increased by 167% to $6.1 million in 1996 from $2.3 million in
1995. Gross margins were 38.5% in 1996 and 25.2% in 1995. The increase in gross
margins was primarily caused by lower unit costs resulting from increased
manufacturing efficiency and reduced overhead cost per unit due to increased
volume, as well as changes in product configurations leading to an increase in
the average selling price. Increased operating


                                     22.

<PAGE>

efficiencies resulting from a larger installed base also reduced the average
cost of maintenance and warranty service. There was no gross profit in 1994.

    RESEARCH AND DEVELOPMENT.  Research and development expenditures consist
primarily of compensation paid to personnel engaged in research and development
activities, amounts paid for outside services, and costs of materials utilized
in the development of hardware products, including prototype units. All software
and hardware development costs are expensed as incurred. Beginning in 1991,
total research and development expenditures by the Company have been partially
offset by amounts reimbursed by the FAA under development contracts and grants.
The Company believes that investment in research and development in absolute
dollars will increase substantially to meet its future needs regardless of the
level of funding received from the FAA.

    Total research and development expenditures increased by 68.2% to $4.3 
million in 1996 from $2.5 million in 1995 and by 5.4% in 1995 from $2.4 
million in 1994. During 1996, 1995 and 1994, the Company was entitled to 
reimbursements of $1.5 million, $593,000 and $821,000, respectively, under 
research and development contracts and grants from the FAA to develop and 
enhance the CTX 5000. Such reimbursements have been reflected as a reduction 
to research and development expense in each period presented. Billings are 
rendered to the FAA monthly on the basis of actual costs incurred. As a 
percentage of revenues, total research and development expenditures remained 
at approximately 27.3% for both 1996 and 1995. In 1996, the increase in total 
expenditures reflects the effects of personnel additions, costs of prototype 
development, efforts to increase throughput and develop systems for more 
effective airport integration, and conceptual design.

    SALES AND MARKETING.  Sales and marketing expenditures consist primarily of
compensation paid to direct and indirect sales and marketing personnel, payments
to consultants, travel related to the sales process, and other selling and
distribution costs.

    Sales and marketing expenditures increased by 59.5% to $3.0 million in 1996
from $1.9 million in 1995 and by 181% in 1995 from $664,000 in 1994. As a
percentage of revenues, sales and marketing expenses declined to 18.8% in 1996
from 20.6% in 1995. The increased levels of expenditures in absolute dollars for
1996 and 1995 reflect increased selling costs associated with the higher unit
sales, including foreign travel, trade shows, public relations and commissions.

    GENERAL AND ADMINISTRATIVE.  General and administrative expenses consist
primarily of compensation paid to administrative personnel, including directors,
payments to consultants, professional service fees, and travel and other general
expenses.

    General and administrative expenses increased by 75.2% to $2.6 million in 
1996 from $1.5 million in 1995 and by 36.5% in 1995 from $1.1 million in 
1994. As a percentage of revenues, general and administrative expenses were 
16.3% for 1996 and 16.2% for 1995.  The increases for 1996 and 1995 reflect 
additions to support capabilities required by the growth in revenues and 
corporate headcount. The increase in absolute dollars in 1996 also reflects 
increased costs of operating as a public company. 

    INTEREST EXPENSE.  Interest expense increased to $1.5 million in 1996 
from $338,000 in 1995 and decreased in 1995 from $410,000 in 1994. Interest 
expense in 1996 reflects the effect of $1.3 million of amortization of the 
fair market value of warrants issued in connection with a bridge loan 
obtained in December 1995. Interest expense during 1995 and 1994 resulted 
directly from short-term debt outstanding during each period.

    INCOME TAXES.  At December 31, 1996 the Company had federal net operating 
loss carryforwards of approximately $11.0 million available to reduce future 
federal taxable income. The Company's net operating loss carryforwards expire 
from 2005 to 2011. As a result of changes in ownership that occurred in the 
1995 financings, future utilization of certain of the Company's carryforwards 
are limited to not more than approximately $500,000 per year.

LIQUIDITY AND CAPITAL RESOURCES

    Since inception, the Company has financed its operations primarily through
private sales of $16.5 million of Preferred and Common Stock (of which $5.6
million represents indebtedness converted to equity), the sale of $9.5 million
of Common Stock in the Company's Initial Public Offering in April 1996, and $3.2
million of short-term borrowings. At December 31, 1996, the Company had $2.4
million in cash and no outstanding borrowings.



                                     23.

<PAGE>

    In February 1997, the Company entered into two one-year revolving line of 
credit agreements with Silicon Valley Bank. The first agreement provides for 
maximum borrowings generally in an amount up to the lower of 80% of domestic 
eligible accounts receivable or $4.5 million. Borrowings under this agreement 
generally bear interest at the bank's prime rate plus 1.00% per annum (9.25% 
at December 31, 1996). The second agreement is partially guaranteed by the 
Export-Import Bank of the United States and provides for maximum borrowings 
generally in an amount up to the lower of (i) the sum of 90% of eligible 
export accounts receivable plus 70% of eligible raw materials and 
work-in-process inventory designated for export customers, (ii) $4.5 million 
less outstanding letters of credit or (iii) $3.0 million. Borrowings under 
this agreement generally bear interest at the bank's prime rate plus 0.75% 
per annum (9.00% at December 31, 1996). Borrowings under both agreements are 
secured by all of the Company's assets. The agreements require that the 
Company maintain certain financial ratios and levels of tangible net worth 
and profitability and also prohibit the Company from paying cash dividends. 
Proceeds of loans under the first line of credit may be used for general 
corporate purposes, and proceeds of loans under the second line of credit 
must be used to finance goods intended for export.

    Cash used in operations was $9.4 million in 1996 and $2.0 million in 1995.
Net cash used in operations for 1996 was primarily due to the net loss of $3.6
million, a $5.3 million increase in accounts receivable and a $1.4 million
increase in inventories which were partially offset by a non-cash charge for the
amortization of the warrant discount of $1.3 million. For 1995, net cash used in
operations was due primarily to the net loss of $3.3 million and increases in
accounts receivable and inventories associated with increased manufacturing and
sales activities, which were partially offset by an increase in accounts payable
and accrued liabilities.

    Net cash used in investing activities was $1.1 million in 1996 and 
$590,000 in 1995, in each case due primarily to the purchase of property and 
equipment. The Company anticipates spending approximately $2.0 million for 
facility improvements and approximately $1.5 million for purchases of capital 
equipment in connection with a move of the Company's principal executive 
offices and manufacturing facility. The Company has no other significant 
capital spending or purchase commitments other than normal purchase 
commitments and commitments under leases.

    Net cash provided by financing activities was $10.9 million in 1996 and $2.3
million in 1995. The increase in 1996 was due to $14.0 million in net proceeds
from issuances of Common Stock primarily associated with the Company's initial
public offering in 1996 which were partially offset by $3.2 million in net
repayments of short-term debt financing. Net cash provided by financing
activities in 1995 was due primarily to $1.2 million in proceeds from the
issuance of Preferred Stock and $1.0 million in proceeds from short-term debt
financing.

    On March 14, 1997, InVision filed a registration statement with the 
Securities and Exchange Commission in connection with a proposed underwritten 
public offering of shares of its Common Stock. On May 14, 1997, 1,875,000 of 
such shares were sold by the Company with resulting net proceeds to the 
Company estimated at $20.5 million. The Company intends to use the net 
proceeds from the offering to purchase capital equipment and undertake 
facility improvements, to fund research and development, and for working 
capital and other general corporate purposes and to pursue possible 
acquisitions. The Company did not receive any proceeds from the sale of 
Common Stock by the selling stockholders.

    The Company believes that existing cash of $2.4 million as of December 31,
1996 and available borrowings under the Company's line of credit agreements,
together with the anticipated net proceeds from the underwritten public
offering, will be sufficient to finance its working capital and capital
expenditure requirements for at least the next 12 months.


                                     24.

<PAGE>

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The Company's Financial Statements and Notes thereto appear on pages F-1 
to F-16 of this Annual Report on Form 10-K.

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND 
         FINANCIAL DISCLOSURE.

     None.



                                      25.
<PAGE>


                                   PART III.


ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

    The information required by Item 10 is incorporated by reference to the 
Proxy Statement under the caption "Proposal No. 1--Election of 
Directors--Nominees." For the information required as to Executive Officers, 
see Part I, "Item 1. Business--Executive Officers."

ITEM 11.  EXECUTIVE COMPENSATION.

    The information required by Item 11 is incorporated by reference to the 
Proxy Statement under the captions "Proposal No. 1--Election of Directors" 
and "Executive Compensation."

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

    The information required by Item 12 is incorporated by reference to the 
Proxy Statement under the caption "Security Ownership of Certain Beneficial 
Owners and Management."

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

    The information required by Item 13 is incorporated by reference to the 
Proxy Statement under the captions "Proposal No. 1--Election of Directors" 
and "Certain Transactions."


                                      26.
<PAGE>

                                      PART IV.

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

(a)(1)    List of Financial Statements

          The financial statements required by this item are submitted in
          a separate section beginning on page F-1 of this report.

          Report of Price Waterhouse LLP, Independent Auditors......  F-1

          Consolidated Balance Sheets as of December 31, 1995
          and 1996..................................................  F-2

          Consolidated Statements of Operations for the Years
          Ended December 31, 1994, 1995 and 1996....................  F-3

          Consolidated Statements of Cash Flows for the Years
          Ended December 31, 1994, 1995 and 1996....................  F-4

          Consolidated Statements of Stockholders' Equity (Deficit) 
          for the Years Ended December 31, 1994, 1995 and 1996......  F-5

          Notes to Consolidated Financial Statements................  F-6

(a)(2)    List of Financial Statement Schedules

          All schedules are omitted because they are not applicable or the 
          required information is shown in the Financial Statements or in the 
          notes thereto.

(a)(3)    Exhibits:

           3.1+     Amended and Restated Certificate of Incorporation of the 
                    Registrant.
           3.2+     Bylaws of Registrant.
           4.1      Reference is made to Exhibits 3.1 and 3.2.
           4.2+     Representative's Warrant Agreement.
          10.1+     Technology License Agreement, dated September 11, 1990, by
                    and between the Registrant and Imatron, Inc.
          10.2+     Stockholders Agreement for the Formation of the Registrant,
                    dated as of August 13, 1990, between Imatron and
                    FI.M.A.I and Amendment, dated as of September 7, 1990,
                    as amended by the Termination Agreement, dated as of
                    December 9, 1992 among the Registrant, FI.M.A.I and Imatron.
          10.3+     Lease, dated as of May 20, 1992, as amended May 4, 1995,
                    between the Registrant and BVY Group.
          10.4+     Registrant's Equity Incentive Plan, dated March 9, 1996.
          10.5+     Registrant's 1996 Employee Stock Purchase Plan, dated
                    March 9, 1996.
          10.6+     Warrant to Purchase Stock pursuant to the Bridge Loan
                    Financing Agreement, dated as of December 28, 1995, by
                    and between the Registrant and Anaconda Partners, L.P.
          10.7+     Standby Financing Agreement, dated as of July 26, 1991, by
                    and between the Company and FI.M.A.I.
          10.10+    Investor Rights Agreement, dated as of December 29, 1995, by
                    and between the Registrant and Kay's Corporation.
          10.12*    Lease, dated as of February 11, 1997, between the Registrant
                    and WHLNF Real Estate L.P.
          10.13*    Purchase Agreement, dated as of December 24, 1996, between
                    the Registrant and the U.S. Federal Aviation
                    Administration.
          10.15*    Stock Purchase Agreement, dated as of November 12, 1996,
                    between the Registrant and EG&G International, Ltd.
          10.16*    Stock Purchase Agreement, dated as of December 31, 1996,
                    between the Registrant and Fredrick L. Roder.
          10.17*    Loan and Security Agreement, dated as of February 20, 1997,
                    between the Registrant and Silicon Valley Bank.
          10.18*    Revolving Promissory Note, dated February 20, 1997, between
                    the Registrant and Silicon Valley Bank.
          10.19*    Export-Import Bank Loan and Security Agreement, dated as of
                    February 20, 1997, between the Registrant and Silicon
                    Valley Bank.

                                      27.
<PAGE>

          10.20*    Intellectual Property Security Agreement, dated as of
                    February 20, 1997, between the Registration and Silicon
                    Valley Bank.
          10.21*    Key Employee Agreement, dated April 21, 1994, between the
                    Registrant and Curtis P. DiSibio.
          10.22*    Key Employee Agreement, dated April 22, 1994, between the
                    Registrant and Sergio Magistri, and amendment thereto,
                    dated October 16, 1995.
          10.23*    Key Employee Agreement, dated March 1, 1996, between the
                    Registrant and David M. Pillor.
          10.24*    Key Employee Agreement, dated April 21, 1994, between the
                    Registrant and Benno Stebler.
          11.1*     Statement of computation regarding per share earnings.
          23.1      Consent of Price Waterhouse LLP.
          24.1**    Powers of Attorney

          ___________

          +         Filed as an exhibit to Registrant's Registration Statement 
                    on Form S-1 (No. 333-380) or amendments thereto and
                    incorporated herein by reference. 

          *         Filed as an exhibit to Registrant's Registration Statement 
                    on Form S-1 (No. 333-23413) and incorporated herein by
                    reference.

          **        Reference is made to page 22 of the Company's Annual 
                    Report on Form 10-K, filed March 31, 1997.

(b)       REPORTS ON FORM 8-K

          The Registrant filed no reports on Form 8-K during the last quarter 
          of the fiscal year ended December 31, 1996.

(c)       See Exhibits listed under Item 14(a)(3)

(d)       The financial statement schedules required by the Item are listed 
          under Item 14(a)(2).


                                      28.
<PAGE>

                                      SIGNATURES

    Pursuant to the requirements of Section 13 or 15(d) of the Securities 
Exchange Act of 1934, the Registrant has duly caused this Amendment No. 1 to 
Annual Report on Form 10-K/A to be signed on its behalf by the undersigned, 
thereunto duly organized, on the 12th day of May 1997.

                                  INVISION TECHNOLOGIES, INC.



                             By:   /S/ SERGIO MAGISTRI                         
                                  ---------------------------------------------
                                  Sergio Magistri
                                  President 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 in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
       SIGNATURE                                   TITLE                           DATE
<S>                          <C>                                                <C>
/S/ SERGIO MAGISTRI          President, Chief Executive Officer and Director    May 12, 1997
-------------------------             (PRINCIPAL EXECUTIVE OFFICER)
    Sergio Magistri


          *                   Vice President and Chief Financial Officer        May 12, 1997
-------------------------     (PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER)
   Curtis P. DiSibio


          *                                      Director                       May 12, 1997
-------------------------
   Douglas P. Boyd


          *                                      Director                       May 12, 1997
-------------------------
   Giovanni Lanzara


          *                                      Director                       May 12, 1997
-------------------------
     Bruno Trezza


*By: /S/ SERGIO MAGISTRI
    ---------------------
       Sergio Magistri
       Attorney-in-Fact


</TABLE>

                                      29.




<PAGE>

                       REPORT OF INDEPENDENT ACCOUNTANTS


To the Board of Directors and Stockholders of InVision Technologies, Inc.

In our opinion, the accompanying consolidated balance sheets and the related 
consolidated statements of operations, of cash flows and of stockholders' 
equity (deficit) present fairly, in all material respects, the financial 
position of InVision Technologies, Inc. and its subsidiary at December 31, 
1995 and 1996, and the results of their operations and their cash flows for 
each of the three years in the period ended December 31, 1996, in conformity 
with generally accepted accounting principles. 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 of these statements in accordance with generally 
accepted auditing standards which 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, 
assessing the accounting principles used and significant estimates made by 
management, and evaluating the overall financial statement presentation. We 
believe that our audits provide a reasonable basis for the opinion expressed 
above.

PRICE WATERHOUSE LLP

San Jose, California
February 20, 1997



                                     F-1

<PAGE>

                          INVISION TECHNOLOGIES, INC.
 
                          CONSOLIDATED BALANCE SHEETS
 
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
 

<TABLE>
<CAPTION>
                                                                                                 DECEMBER 31,
                                                                                             --------------------
                                                                                               1995       1996
                                                                                             ---------  ---------
<S>                                                                                          <C>        <C>
                                                     ASSETS
Current assets:
  Cash.....................................................................................  $   1,927  $   2,363
  Accounts receivable......................................................................        735      5,987
  Inventories..............................................................................      3,413      4,810
  Prepaid expenses.........................................................................        252        292
                                                                                             ---------  ---------
      Total current assets.................................................................      6,327     13,452
Property and equipment, net................................................................        914      1,804
Other assets...............................................................................         75         --
                                                                                             ---------  ---------
                                                                                             $   7,316  $  15,256
                                                                                             ---------  ---------
                                                                                             ---------  ---------
                                 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
 
Current liabilities:
  Accounts payable.........................................................................  $   3,035  $   2,541
  Accrued liabilities......................................................................      1,217      1,020
  Short-term debt..........................................................................      2,260         --
  Advances from stockholders...............................................................        200         --
  Deferred revenue.........................................................................      3,082      2,443
  Current maturities of obligations under capital lease....................................         10         68
                                                                                             ---------  ---------
      Total current liabilities............................................................      9,804      6,072
                                                                                             ---------  ---------
 
Long-term obligations under capital lease, less current portion............................         34        110
                                                                                             ---------  ---------
Commitments (Notes 9, 11 and 12)
 
Stockholders' equity (deficit):
  Convertible preferred stock, $0.001 par value; 5,000 shares authorized; 2,619 shares and
    none issued and outstanding............................................................     12,212         --
  Preferred stock, $0.001 par value; 5,000 shares authorized; none issued and
    outstanding............................................................................         --         --
  Common stock, $0.001 par value; 20,000 shares authorized; 124 and 9,160 shares issued and
    outstanding............................................................................         --          9
  Additional paid-in capital...............................................................      1,885     28,919
  Deferred stock compensation expense......................................................       (692)      (355)
  Accumulated deficit......................................................................    (15,927)   (19,499)
                                                                                             ---------  ---------
      Total stockholders' equity (deficit).................................................     (2,522)     9,074
                                                                                             ---------  ---------
                                                                                             $   7,316  $  15,256
                                                                                             ---------  ---------
                                                                                             ---------  ---------
</TABLE>

 
  The accompanying notes are an integral part of these consolidated financial
                                  statements.
 

                                     F-2


<PAGE>
                          INVISION TECHNOLOGIES, INC.
 
                     CONSOLIDATED STATEMENTS OF OPERATIONS
 
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
 

<TABLE>
<CAPTION>
                                                                                        YEAR ENDED DECEMBER 31,
                                                                                    -------------------------------
                                                                                      1994       1995       1996
                                                                                    ---------  ---------  ---------
<S>                                                                                 <C>        <C>        <C>
Revenues..........................................................................  $      --  $   9,066  $  15,841
Cost of revenues..................................................................         --      6,777      9,736
                                                                                    ---------  ---------  ---------
  Gross profit....................................................................         --      2,289      6,105
                                                                                    ---------  ---------  ---------
 
Operating expenses:
  Research and development........................................................      1,582      1,940      2,785
  Sales and marketing.............................................................        664      1,866      2,976
  General and administrative......................................................      1,078      1,471      2,577
                                                                                    ---------  ---------  ---------
    Total operating expenses......................................................      3,324      5,277      8,338
                                                                                    ---------  ---------  ---------
Loss from operations..............................................................     (3,324)    (2,988)    (2,233)
Interest expense (including related party interest expense of
  $90; $104; and $54).............................................................       (410)      (338)    (1,511)
Other income, net.................................................................          7         34        172
                                                                                    ---------  ---------  ---------
 
Net loss..........................................................................  $  (3,727) $  (3,292) $  (3,572)
                                                                                    ---------  ---------  ---------
                                                                                    ---------  ---------  ---------
 
Net loss per share (Note 2).......................................................             $   (0.50) $   (0.44)
                                                                                               ---------  ---------
                                                                                               ---------  ---------
Shares used in per share calculations (Note 2)....................................                 6,642      8,142
</TABLE>

 
  The accompanying notes are an integral part of these consolidated financial
                                  statements.
 

                                     F-3


<PAGE>
                          INVISION TECHNOLOGIES, INC.
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
 

<TABLE>
<CAPTION>
                                                                                        YEAR ENDED DECEMBER 31,
                                                                                    -------------------------------
                                                                                      1994       1995       1996
                                                                                    ---------  ---------  ---------
<S>                                                                                 <C>        <C>        <C>
Cash flows from operating activities:
  Net loss........................................................................  $  (3,727) $  (3,292) $  (3,572)
  Adjustments to reconcile net loss to net cash used in operating activities:
    Depreciation and amortization.................................................        255        239        371
    Amortization of bridge loan warrant expense...................................         --         --      1,330
    Stock compensation expense....................................................         --        369        489
    Changes in assets and liabilities:
      Accounts receivable.........................................................        163       (611)    (5,252)
      Inventories.................................................................       (939)    (1,887)    (1,397)
      Prepaid expenses............................................................         --         --        (34)
      Other assets................................................................        (29)      (135)        --
      Accounts payable............................................................        618      2,219       (522)
      Accrued liabilities.........................................................        121        915       (202)
      Deferred revenues...........................................................      2,948        134       (639)
                                                                                    ---------  ---------  ---------
        Net cash used in operating activities.....................................       (590)    (2,049)    (9,428)
                                                                                    ---------  ---------  ---------
 
Cash flows from investing activities:
  Acquisition of property and equipment...........................................       (117)      (590)    (1,074)
                                                                                    ---------  ---------  ---------
 
Cash flows from financing activities:
  Proceeds from short-term debt...................................................      2,250      1,000      1,000
  Repayments of short-term debt...................................................         --         --     (4,200)
  Proceeds from capital lease financing...........................................         --         53        169
  Repayments of capital lease financing...........................................         --         (9)       (35)
  Proceeds from issuance of preferred stock.......................................        464      1,244         --
  Proceeds from issuance of common stock, net.....................................         22         37     14,004
                                                                                    ---------  ---------  ---------
      Net cash provided by financing activities...................................      2,736      2,325     10,938
                                                                                    ---------  ---------  ---------
 
Net increase (decrease) in cash for the period....................................      2,029       (314)       436
Cash at beginning of period.......................................................        212      2,241      1,927
                                                                                    ---------  ---------  ---------
Cash at end of period.............................................................  $   2,241  $   1,927  $   2,363
                                                                                    ---------  ---------  ---------
                                                                                    ---------  ---------  ---------
 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
  Interest paid...................................................................  $     319  $     220  $     233
                                                                                    ---------  ---------  ---------
                                                                                    ---------  ---------  ---------
 
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING AND INVESTING ACTIVITIES:
  Issuance of common stock upon conversion of preferred stock.....................  $      --  $      --  $  12,212
  Issuance of Series D preferred stock upon the conversion of short-term debt and
    accrued interest..............................................................  $   3,000  $   2,604  $      --
  Warrants issued in connection with bridge loan financing........................  $      --  $     740  $     590
  Issuance of common stock in connection with acquisition of subsidiary...........  $      --  $      --  $      85
</TABLE>

 
  The accompanying notes are an integral part of these consolidated financial
                                  statements.
 

                                     F-4


<PAGE>
                          INVISION TECHNOLOGIES, INC.
 
                  STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                        CONVERTIBLE                                              DEFERRED
                                      PREFERRED STOCK          COMMON STOCK       ADDITIONAL       STOCK
                                    --------------------  ----------------------    PAID-IN    COMPENSATION   ACCUMULATED
                                     SHARES     AMOUNT     SHARES      AMOUNT       CAPITAL       EXPENSE       DEFICIT
                                    ---------  ---------  ---------  -----------  -----------  -------------  ------------
<S>                                 <C>        <C>        <C>        <C>          <C>          <C>            <C>
Balance at December 31, 1993......        586  $   4,900         32   $      --    $      25     $      --     $   (8,908)
Issuance of Series D preferred
  stock...........................        926      3,464         --          --           --            --             --
Exercise of common stock
  options.........................         --         --         26          --           22            --             --
Net loss..........................         --         --         --          --           --            --         (3,727)
                                    ---------  ---------  ---------         ---   -----------  -------------  ------------
Balance at December 31, 1994......      1,512      8,364         58          --           47            --        (12,635)
Issuance of Series D preferred
  stock...........................        789      2,948         --          --           --            --             --
Issuance of Series D preferred
  stock to stockholders for
  distribution rights.............        227         --         --          --           --            --             --
Issuance of Series E preferred
  stock...........................         91        900         --          --           --            --             --
Deferred stock compensation.......         --         --         --          --        1,061        (1,061)            --
Amortization of deferred stock
  compensation....................         --         --         --          --           --           369             --
Issuance of warrant...............         --         --         --          --          740            --             --
Exercise of common stock
  options.........................         --         --         66          --           37            --             --
Net loss..........................         --         --         --          --           --            --         (3,292)
                                    ---------  ---------  ---------         ---   -----------  -------------  ------------
Balance at December 31, 1995......      2,619     12,212        124          --        1,885          (692)       (15,927)
 
Issuance of common stock pursuant
  to initial public offering, net
  of expenses.....................         --         --      2,070           2        9,530            --             --
Conversion of preferred stock to
  common stock upon completion of
  initial public offering.........     (2,619)   (12,212)     6,106           6       12,206            --             --
Deferred stock compensation.......         --         --         --          --          152          (152)            --
Amortization of deferred stock
  compensation....................         --         --         --          --           --           489             --
Issuance of warrant...............         --         --         --          --          590            --             --
Exercise of common stock
  options.........................         --         --        122          --           84            --             --
Exercise of common stock
  warrants........................         --         --        518           1        2,318            --             --
Issuance of common stock pursuant
  to EG&G agreement...............         --         --        184          --        1,974            --             --
Issuances of common stock
  primarily pursuant to
  acquisition of subsidiary.......         --         --         36          --          180            --             --
Net loss..........................         --         --         --          --           --            --         (3,572)
                                    ---------  ---------  ---------         ---   -----------  -------------  ------------
Balance at December 31, 1996......         --  $      --      9,160   $       9    $  28,919     $    (355)    $  (19,499)
                                    ---------  ---------  ---------         ---   -----------  -------------  ------------
                                    ---------  ---------  ---------         ---   -----------  -------------  ------------
 
<CAPTION>
                                        TOTAL
                                    STOCKHOLDERS'
                                       EQUITY
                                      (DEFICIT)
                                    -------------
<S>                                 <C>
Balance at December 31, 1993......    $  (3,983)
Issuance of Series D preferred
  stock...........................        3,464
Exercise of common stock
  options.........................           22
Net loss..........................       (3,727)
                                    -------------
Balance at December 31, 1994......       (4,224)
Issuance of Series D preferred
  stock...........................        2,948
Issuance of Series D preferred
  stock to stockholders for
  distribution rights.............           --
Issuance of Series E preferred
  stock...........................          900
Deferred stock compensation.......           --
Amortization of deferred stock
  compensation....................          369
Issuance of warrant...............          740
Exercise of common stock
  options.........................           37
Net loss..........................       (3,292)
                                    -------------
Balance at December 31, 1995......       (2,522)
Issuance of common stock pursuant
  to initial public offering, net
  of expenses.....................        9,532
Conversion of preferred stock to
  common stock upon completion of
  initial public offering.........           --
Deferred stock compensation.......           --
Amortization of deferred stock
  compensation....................          489
Issuance of warrant...............          590
Exercise of common stock
  options.........................           84
Exercise of common stock
  warrants........................        2,319
Issuance of common stock pursuant
  to EG&G agreement...............        1,974
Issuances of common stock
  primarily pursuant to
  acquisition of subsidiary.......          180
Net loss..........................       (3,572)
                                    -------------
Balance at December 31, 1996......    $   9,074
                                    -------------
                                    -------------
</TABLE>

 
  The accompanying notes are an integral part of these consolidated financial
                                  statements.
 


                                     F-5



<PAGE>
                          INVISION TECHNOLOGIES, INC.
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--THE COMPANY:

    InVision Technologies, Inc. ("InVision," or the "Company") is the 
worldwide leader in explosive detection technology. The Company develops, 
manufactures, markets and supports an explosive detection system ("EDS") for 
civil aviation security based on advanced computed tomography ("CT" or 
"CATScan" technology).

    Formed in 1990, InVision exited the development stage in 1995 upon the 
first commercial sales of its product, the CTX 5000 explosive detection 
system. The CTX 5000 is sold to airport and regulatory authorities and 
airlines throughout the world.

NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

  BASIS OF PRESENTATION

    The consolidated financial statements include the financial statements of
the Company and its wholly owned subsidiary, Imatron Federal Systems, Inc.,
acquired in December 1996. All significant intercompany transactions and
accounts have been eliminated. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities, 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.

  STOCK SPLIT

    Share information for all periods presented has been retroactively 
adjusted to reflect a 1-for-11 reverse stock split of Common Stock and 
Preferred Stock effected on March 15, 1996, and a 2-for-1 Common Stock split 
in the form of a stock dividend effected on February 7, 1997.

  REVENUE RECOGNITION

    Revenue from product sales is recognized upon shipment unless extended
acceptance criteria exist, in which case revenue is recognized upon completion
of such acceptance criteria. Provision for estimated installation, training and
warranty costs is recorded at the time revenue is recognized.

  INVENTORIES

    Inventories are stated at the lower of cost (first-in, first-out) or market.

  PROPERTY AND EQUIPMENT

    Property and equipment are recorded at cost. Depreciation is computed using
the straight-line method based upon the estimated useful lives of the assets,
which range from one to five years. Leasehold improvements are amortized using
the straight-line method over the shorter of their useful lives or the terms of
the leases.

    In 1996, the Company adopted Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of." Accordingly, the Company evaluates the recoverability
of its assets when events and changes in circumstances indicate that such
amounts may not be recoverable. The Company determines the recoverability of the
carrying amount of each intangible asset by reviewing the following factors: the
undiscounted value of expected operating cash flows in relation to its net
capital investment; the estimated useful or contractual life of the intangible
asset; the contract or product supporting the intangible asset; and, in the case
of purchased technology, the Company periodically reviews the


                                     F-6


<PAGE>
                          INVISION TECHNOLOGIES, INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)

recoverability of the asset value by evaluating its products with respect to
technological advances, competitive products and the long-lived asset impairment
losses.

  DEFERRED REVENUE

    Deferred revenue arises from advance payments received from customers for
systems to be delivered within the next year.

  INCOME TAXES

    The Company accounts for income taxes using an asset and liability approach
that requires the recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been recognized in the
Company's financial statements or tax returns.

  RESEARCH AND DEVELOPMENT COSTS

    Research and development costs are charged to operations as incurred.
Contractually reimbursable costs for certain research and development activities
are reflected as a reduction to research and development expense in the period
the related costs are incurred (Note 4).

  SOFTWARE DEVELOPMENT COSTS

    To date, the period between achieving technological feasibility and the
general availability of software included in the Company's product has been
short and software development costs qualifying for capitalization have been
insignificant. Accordingly, the Company has not capitalized any software
development costs.

  STOCK COMPENSATION

    The Company accounts for employee stock-based compensation in accordance
with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees." In January 1996, the Company adopted the disclosure requirements of
Statement of Financial Accounting Standards No. 123 ("FAS 123"), "Accounting for
Stock-Based Compensation" (see Note 8).

  DEPENDENCE ON SUPPLIERS

    The Company's ability to timely deliver its products is dependent upon 
the availability of quality components and subsystems used in these products. 
The Company depends in part upon subcontractors to manufacture, assemble and 
deliver certain items in a timely and satisfactory manner. The Company 
obtains certain components and subsystems from single, or a limited number of 
sources. A significant interruption in the delivery of such items could have 
a material adverse effect on the Company's financial condition and results of 
operations.

  EXPORT SALES AND CONCENTRATION OF CREDIT RISK

    The Company markets its systems both internationally and domestically.
Product sales by geographic region are as follows (in thousands):

<TABLE>
<CAPTION>
                                                                            YEAR ENDED DECEMBER
                                                                                    31,
                                                                            --------------------
                                                                              1995       1996
                                                                            ---------  ---------
<S>                                                                         <C>        <C>
Europe (primarily United Kingdom).........................................  $   6,578  $   7,488
United States.............................................................        975      3,766
Pacific Rim...............................................................        863      2,062
Middle East...............................................................        650      2,525
                                                                            ---------  ---------
                                                                            $   9,066  $  15,841
                                                                            ---------  ---------
                                                                            ---------  ---------
</TABLE>


                                     F-7


<PAGE>
                          INVISION TECHNOLOGIES, INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)

    Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist primarily of cash and accounts receivable.
The Company limits the amount of credit exposure of cash balances by maintaining
its accounts in a high credit quality financial institution. Except for the
Federal Aviation Administration contract (see Note 3), the Company's standard
credit policy requires prepayment of up to 50% prior to shipment on all sales.
To date, the Company has not experienced any material credit losses and
accordingly has not recorded an allowance for doubtful accounts at December 31,
1995 or 1996. The Company's revenues are denominated in U.S. dollars. At
December 31, 1996, two customers accounted for 59% and 18% of total accounts
receivable. Significant customers which represented 10% or more of revenues for
the respective periods were as follows:

<TABLE>
<CAPTION>
                                                                             YEAR ENDED
                                                                            DECEMBER 31,
                                                                  --------------------------------
                                                                       1995             1996
                                                                  ---------------  ---------------
<S>                                                               <C>              <C>
Customer A......................................................            51%              22%
Customer B......................................................            12%              --
Customer C......................................................            11%              --
Customer D......................................................            --               13%
Customer E......................................................            --               12%
Customer F......................................................            --               12%
Customer G......................................................            --               16%
Customer H......................................................            --               13%
</TABLE>

  NET LOSS PER SHARE

    Net loss per share is computed using the weighted average number of Common
Stock and common equivalent shares, when dilutive, from stock options and
warrants (using the treasury stock method). Pursuant to Securities and Exchange
Commission Staff Accounting Bulletins, Common Stock and common equivalent shares
issued by the Company during the 12-month period prior to the Company's initial
public offering consisting of convertible preferred stock (using the
if-converted method), and stock options and warrants (using the treasury stock
method) have been included in the calculation as if they were outstanding for
all periods prior to and including March 31, 1996, even though their effect is
antidilutive. Historical net loss per share amounts have not been presented in
1994 because such amounts are not deemed meaningful due to the significant
changes in the Company's capital structure that occurred in connection with the
initial public offering.

  RECLASSIFICATIONS

    Certain prior year balances have been reclassified to be consistent with the
1996 presentation.

NOTE 3--FEDERAL AVIATION ADMINISTRATION (FAA) CONTRACT:

    In December 1996, the Company entered into a contract with the Federal
Aviation Administration ("FAA" and the "FAA Contract") to deliver fifty-four
(54) CTX 5000 systems to various airports in the United States beginning in
January and ending in December 1997. The minimum amount due from the FAA under
this contract, including all related products and associated installation and
support services, is $52.2 million. The Company will invoice and collect
progress payments while systems are being manufactured in an amount equal to 80%
of manufacturing costs incurred. The balance will be invoiced and collected
after delivery and installation of each system.


                                     F-8

<PAGE>
                          INVISION TECHNOLOGIES, INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 3--FEDERAL AVIATION ADMINISTRATION (FAA) CONTRACT: (CONTINUED)

    The number of systems deliverable under the FAA Contract during 1997 exceeds
the total number of systems manufactured by the Company to date. The Company has
determined that its existing manufacturing facilities are inadequate to meet its
obligation to deliver 54 systems under the FAA Contract and, accordingly, has
entered into a lease agreement for new primary operating facilities including
new manufacturing facilities (see Note 12). The Company believes that these new
facilities will be adequate to meet its current delivery obligations.

NOTE 4--RESEARCH AND DEVELOPMENT CONTRACTS:

    The Company has been awarded various research and development contracts and
grants by the FAA to share in the costs of developing and enhancing the
Company's product. During 1994, 1995 and 1996, the Company was entitled to
reimbursements of $821,000, $593,000 and $1,476,000, respectively, under these
contracts and grants. Such reimbursements have been reflected as a reduction to
research and development expense in each period presented. Billings are rendered
to the FAA monthly on the basis of actual costs incurred. At December 1995 and
1996, the related receivable balance from the FAA was $17,000 and $331,000,
respectively.

NOTE 5--BALANCE SHEET COMPONENTS (IN THOUSANDS):

<TABLE>
<CAPTION>
                                                                                DECEMBER 31,
                                                                            --------------------
                                                                              1995       1996
                                                                            ---------  ---------
<S>                                                                         <C>        <C>
Accounts receivable:
  Billed..................................................................  $     388  $   5,026
  Unbilled................................................................        347        961
                                                                            ---------  ---------
                                                                            $     735  $   5,987
                                                                            ---------  ---------
                                                                            ---------  ---------
 
Inventories:
  Raw material and purchased components...................................  $   1,853  $   3,003
  Work-in-process.........................................................        779      1,331
  Finished goods..........................................................        781        476
                                                                            ---------  ---------
                                                                            $   3,413  $   4,810
                                                                            ---------  ---------
                                                                            ---------  ---------
 
Property and equipment:
  Machinery and equipment.................................................  $     868  $   1,400
  Self constructed assets.................................................        606      1,140
  Furniture and fixtures..................................................         71        160
  Leasehold improvements..................................................         73        145
                                                                            ---------  ---------
                                                                                1,618      2,845
  Less accumulated depreciation and amortization..........................       (704)    (1,041)
                                                                            ---------  ---------
                                                                            $     914  $   1,804
                                                                            ---------  ---------
                                                                            ---------  ---------
</TABLE>

    Self-constructed assets are manufactured by the Company for use in system
testing and support, and include the cost of parts and materials, and an
overhead allocation. The Company depreciates self-constructed assets over their
respective estimated useful lives which range from three to five years.


                                     F-9


<PAGE>
                          INVISION TECHNOLOGIES, INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 5--BALANCE SHEET COMPONENTS (IN THOUSANDS): (CONTINUED)

    At December 31, 1995 and 1996 the Company had $53,000 and $222,000,
respectively, of capitalized lease equipment and related accumulated
amortization of $6,000 and $39,000, respectively.

<TABLE>
<S>                                                          <C>        <C>
Accrued liabilities:
  Warranty reserves........................................  $     695  $     645
  Accrued employee compensation............................        327        311
  Other....................................................        195         64
                                                             ---------  ---------
                                                             $   1,217  $   1,020
                                                             ---------  ---------
                                                             ---------  ---------
</TABLE>

NOTE 6--SHORT-TERM DEBT:

    At December 31, 1995, $2,000,000 of short-term debt was outstanding
representing all of the funds available under a line of credit agreement with a
bank. Interest accrued under the line of credit agreement at a rate of prime
plus 1%. The rate in effect at December 31, 1995 was 9.75%. All amounts
outstanding under this line of credit agreement were repaid in May 1996, and the
line of credit agreement was subsequently terminated.

    In December 1995, the Company entered into a $2,000,000 Bridge Loan
Agreement (the "Bridge Loan") with a lender. Under the agreement, the Company
borrowed $1,000,000 in December 1995, and an additional $1,000,000 in February
1996. Principal outstanding under the agreement was secured by all assets of the
Company. The Bridge Loan was repaid in full on May 1, 1996, in accordance with
its terms.

    In connection with the Bridge Loan, the lender received the Bridge Loan
Warrants described in Note 7, below. The aggregate fair value of the Bridge Loan
Warrants, as determined at their respective dates of issuance, was $1,330,000.
Such value represents a discount that was amortized as a financing cost over the
period that the Bridge Loan was outstanding.

    At December 31, 1995, certain of the Company's stockholders had advanced
$200,000 directly to the Company. Interest accrued at prime plus 1%. This
advance was repaid in December 1996.

NOTE 7--STOCKHOLDERS' EQUITY (DEFICIT):

  COMMON STOCK

    In November 1996, the Company issued 183,750 shares of unregistered Common
Stock to EG&G International Ltd. at $10.88 per share, reflecting a 10% discount
from the market price of the Company's Common Stock in connection with the
signing of a Research, Development and License Agreement (Note 11). Net proceeds
totaled $1,974,000. These shares will be registered at the request of the
shareholder upon the earlier of a public offering by the Company resulting in
net proceeds of at least $10,000,000 or November 1997.

    In April 1996, the Company issued 1,800,000 shares of Common Stock at $5.50
per share in conjunction with the Company's initial public offering ("IPO").
Proceeds to the Company, net of discounts, commissions and offering expenses,
totaled $8,211,000. In May 1996, the underwriters exercised their over-allotment
option to purchase 270,000 additional shares of Common Stock for total net
proceeds to the Company of $1,321,000. Proceeds from the IPO were used primarily
to repay short term debt, reduce outstanding accounts payable and to provide
working capital for the Company.


                                     F-10


<PAGE>
                          INVISION TECHNOLOGIES, INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 7--STOCKHOLDERS' EQUITY (DEFICIT): (CONTINUED)

    In connection with the Company's IPO, Donald & Co. Securities Inc., the
underwriter, received, under the terms of the underwriting agreement, four-year
warrants to purchase 180,000 shares of the Company's Common Stock at a price of
$6.60 per share commencing April 23, 1997.

  PREFERRED STOCK

    In conjunction with the Company's IPO, all outstanding Convertible Preferred
Stock converted to Common Stock. As of December 31, 1996, there were 5,000,000
shares of Preferred Stock authorized and no shares were issued and outstanding.
The Board of Directors is authorized to issue Preferred Stock in one or more
series and to fix the rights, preferences, privileges and restrictions thereof,
including dividend rights, dividend rates, conversion rights, voting rights,
terms of redemption, redemption prices, liquidation preferences, and number of
shares constituting any series or the designation of such series, without
further action or vote by the Company's stockholders.

  WARRANTS

    In connection with the Bridge Loan, the Company issued three-year warrants
to purchase 63,636 and 227,272 shares of Common Stock in 1995 at $5.50 and $4.40
per share, respectively, and 227,272 shares of Common Stock at $4.40 per share
in 1996. The Bridge Loan warrants were exercised in full at various times during
the month of August 1996, with the Company receiving net proceeds from the
exercise of $2,319,000.

NOTE 8--EMPLOYEE STOCK AND BENEFIT PLANS:

  EQUITY INCENTIVE PLAN

    In March 1996, the Board of Directors approved the amended and restated 
1991 Stock Option Plan, which was renamed the Equity Incentive Plan. The 
Equity Incentive Plan provides for the granting of incentive stock options 
and non qualified stock options for the purchase of up to an aggregate of 
2,221,818 shares of the Company's common stock by officers, employees, 
consultants and directors of the Company. The Board of Directors is 
responsible for administration of the Equity Incentive Plan. The Board of 
Directors determines the term of each option, option exercise price, number 
of shares for which each option is granted and the rate at which each option 
is exercisable. Options granted under the Equity Incentive Plan generally 
vest over a four year period.

    Incentive and non qualified stock options may be granted at an exercise 
price per share of not less than 85% of the fair value per common share on 
the date of the grant (not less than 110% of the fair value in the case of 
holders of more than 10% of the Company's voting stock). Options granted 
under the Equity Incentive Plan generally expire ten years from the date of 
the grant (five years for incentive stock options granted to holders of more 
than 10% of the Company's voting stock).


                                     F-11


<PAGE>
                          INVISION TECHNOLOGIES, INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 8--EMPLOYEE STOCK AND BENEFIT PLANS: (CONTINUED)

    In December 1994, the Company repriced all outstanding options in order to
reconstitute the option pool as a result of the dilutive effect on common stock
of the issuance of Series D Preferred Stock during the year. The outstanding
options were cancelled and new options were issued at an exercise price of $0.55
per share, which represented the fair value of common stock as determined by the
Board of Directors. Cumulative vesting percentages applicable to the cancelled
options were given to the regranted options.

    In connection with grants of stock options to employees and directors in
1995 and 1996, the Company recorded $1,061,000 and $152,000, respectively, of
deferred compensation representing the difference between the deemed fair value
of the Company's Common Stock and the exercise price at the date of grant. Of
such amounts, $369,000 and $489,000 were recorded to expense in 1995 and 1996,
respectively. The remaining $355,000 is being amortized over the remaining
vesting period of the related options.

    Transactions under the Equity Incentive Plan are summarized as follows
(in thousands except per share amounts):

<TABLE>
<CAPTION>
                                                                                 YEAR ENDED DECEMBER 31,
                                                        --------------------------------------------------------------------------
                                                                  1994                      1995                     1996
                                                        ------------------------  ------------------------  ----------------------
                                                                      WEIGHTED                  WEIGHTED                WEIGHTED
                                                                       AVERAGE                   AVERAGE                 AVERAGE
                                                                      EXERCISE                  EXERCISE                EXERCISE
                                                          SHARES        PRICE       SHARES        PRICE      SHARES       PRICE
                                                        -----------  -----------  -----------  -----------  ---------  -----------
<S>                                                     <C>          <C>          <C>          <C>          <C>        <C>
Outstanding at beginning of period....................         234    $    1.23          383    $    0.57       1,190   $    0.82
  Granted.............................................         402         0.63          896         0.92         150        9.13
  Exercised...........................................         (26)        0.61          (66)        0.55        (122)       0.69
  Canceled............................................        (227)        1.36          (23)        0.96         (77)       0.85
                                                               ---                     -----                ---------
Outstanding at period end.............................         383         0.57        1,190         0.82       1,141        1.92
                                                               ---                     -----                ---------
                                                               ---                     -----                ---------
Options exercisable at period end.....................         202         0.58          384         0.56         643        0.80
                                                               ---                     -----                ---------
                                                               ---                     -----                ---------
Weighted average grant date fair value of such options
 granted during the year..............................                                                      $    4.04
                                                                                                            ---------
                                                                                                            ---------
Weighted average grant date fair value of options
 granted during the year at exercise prices below
 market prices........................................                                                      $      --
                                                                                                            ---------
                                                                                                            ---------
</TABLE>


                                     F-12


<PAGE>
                          INVISION TECHNOLOGIES, INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 8--EMPLOYEE STOCK AND BENEFIT PLANS: (CONTINUED)

    The following table summarizes information about employee and director stock
options outstanding at December 31, 1996 (in thousands, except per share
amounts):

<TABLE>
<CAPTION>
                                                           OPTIONS OUTSTANDING                        OPTIONS EXERCISABLE
                                                       ----------------------------               ----------------------------
                                                                         AVERAGE      WEIGHTED                      WEIGHTED
                                                                        REMAINING      AVERAGE                       AVERAGE
                                                          NUMBER       CONTRACTUAL    EXERCISE        NUMBER        EXERCISE
RANGE OF EXERCISE PRICES                                OUTSTANDING       LIFE          PRICE       EXERCISABLE       PRICE
-----------------------------------------------------  -------------  -------------  -----------  ---------------  -----------
<S>                                                    <C>            <C>            <C>          <C>              <C>
$0.55................................................          479            7.9     $    0.55            356      $    0.55
$1.10................................................          512            8.8          1.10            287           1.10
$3.30................................................            9            9.0          3.30         --             --
$4.40................................................           15            9.2          4.40         --             --
$5.50................................................           28            9.4          5.54         --             --
$10.50...............................................            7            9.8         10,50         --             --
$11.25...............................................           41           10.0         11.25         --             --
$11.88...............................................           50            9.9         11.88         --             --
                                                             -----                                         ---
                                                             1,141            8.5          1.92            643           0.80
                                                             -----                                         ---
                                                             -----                                         ---

</TABLE>

  FAIR VALUE DISCLOSURES

    Had compensation cost for options granted in 1995 and 1996 under the
Company's 1996 Equity Incentive Plan been determined based on the fair value at
the grant dates, as prescribed in FAS 123, the Company's net loss and pro forma
net loss per share would have been as follows (in thousands except per share
amounts):

<TABLE>
<CAPTION>
                                                                         YEAR ENDED DECEMBER
                                                                                 31,
                                                                         --------------------
                                                                           1995       1996
                                                                         ---------  ---------
<S>                                                                      <C>        <C>
Net loss:
  As reported..........................................................  $  (3,292) $  (3,572)
  Pro forma............................................................     (3,330)    (3,665)
Pro forma net loss per share:
  As reported..........................................................  $   (0.50) $   (0.44)
  Pro forma............................................................      (0.50)     (0.47)
</TABLE>

    The fair value of each option grant is estimated on the date of grant using
the minimum value method with the following assumptions used for grants during
the applicable period: dividend yield of 0.0% for both periods; risk-free
interest rates of 5.89% to 6.00% for options granted during the year ended
December 31, 1995 and 5.19% to 6.38% for options granted during the year ended
December 31, 1996; weighted average expected option term of five years for both
periods; and a volatility rate of 65%.

  1996 EMPLOYEE STOCK PURCHASE PLAN

    The Company's 1996 Employee Stock Purchase Plan (the "Purchase Plan") was
adopted in March 1996. A total of 300,000 shares of Common Stock has been
reserved for issuance under the Purchase Plan. As of December 31, 1996, no
shares have been issued under the Purchase Plan.


                                     F-13


<PAGE>
                          INVISION TECHNOLOGIES, INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 9--COMMITMENTS:

    The Company leases facilities and equipment under non-cancelable leases
expiring at various times through 2000. Future minimum lease payments under
these leases at December 31, 1996 are as follows (in thousands):

<TABLE>
<CAPTION>
                                                                         OPERATING     CAPITAL
YEAR ENDING DECEMBER 31,                                                   LEASE        LEASE
----------------------------------------------------------------------  -----------  -----------
<S>                                                                     <C>          <C>
 1997.................................................................   $     370    $      89
  1998................................................................         286           89
  1999................................................................          --           37
                                                                               ---          ---
                                                                         $     656          215
                                                                               ---
                                                                               ---
  Less amount representing interest...................................                      (37)
                                                                                            ---
  Present value of capital lease obligation...........................                      178
  Less current portion................................................                      (68)
                                                                                            ---
    Long term capital lease obligation................................                $     110
                                                                                            ---
                                                                                            ---
</TABLE>

    Rent expense for 1994, 1995 and 1996 was $252,000, and $289,000 and
$328,000, respectively.

NOTE 10--INCOME TAXES:

    As a result of the losses generated during 1994, 1995 and 1996 the Company
has recorded no provision for income taxes and therefore a reconciliation of the
federal statutory rate to the effective rate is not meaningful.

    Significant components of the Company's deferred tax assets and liabilities
are as follows (in thousands):

<TABLE>
<CAPTION>
                                                                             DECEMBER 31,
                                                                         --------------------
                                                                           1995       1996
                                                                         ---------  ---------
<S>                                                                      <C>        <C>
Net operating loss carryforwards.......................................  $   2,810  $   4,256
Credit carryforwards...................................................        750        877
Depreciation and amortization..........................................         31       (103)
Accrued expenses.......................................................        380        490
Other..................................................................        199         60
                                                                         ---------  ---------
Gross deferred tax assets..............................................      4,170      5,580
Deferred tax asset valuation allowance.................................     (4,170)    (5,580)
                                                                         ---------  ---------
Net deferred tax assets................................................  $      --  $      --
                                                                         ---------  ---------
                                                                         ---------  ---------
</TABLE>

    The Company provides a valuation allowance for deferred tax assets when it
is more likely than not, based upon currently available evidence including its
prior history of losses, that some portion or all of the deferred tax assets
will not be realized.

    At December 31, 1996, the Company had federal net operating loss
carryforwards of approximately $10,969,000 available to reduce future federal
and state taxable income. The Company's net operating loss carryforwards expire
from 2005 to 2011. The tax benefit of the net operating loss and credit
carryforwards may be limited due to the impact of the Tax Reform Act of 1986.
Events which may cause the tax benefit to be limited include, but are not
limited to, a cumulative stock ownership change of more than 50%, as defined,
over a three-


                                     F-14


<PAGE>
                          INVISION TECHNOLOGIES, INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 10--INCOME TAXES: (CONTINUED)

year period and the timing of utilization of various tax benefits carried
forward. As a result of changes in ownership that have occurred, future
utilization of certain of the Company's carryforwards will be limited to
approximately $500,000 per year. Accordingly, the balance of net operating loss
carryforwards at December 31, 1996 has been adjusted to reflect the limitation.

NOTE 11--RELATED PARTY TRANSACTIONS:

    In November 1996, the Company entered into a Research, Development and
License Agreement with EG&G Astrophysics, an affiliate of EG&G International
Ltd. Under the terms of this agreement, the Company and EG&G Astrophysics are
each committed to contribute up to $1,000,000 to fund a joint research and
development effort to develop an explosive detection system with enhanced
capability for reliable detection of explosives at higher rates of through-put
than the Company's existing system. Any new technology developed in connection
with the research and development effort will be jointly owned. The agreement
terminates in May 1998. As of December 31, 1996, the Company has made no
expenditures related to its commitment under this agreement.

    The Company was originally formed as a joint venture arrangement between
Imatron, Inc. ("Imatron", a publicly traded company in the U.S.) and F.I.M.A.I.
Holding, S.A. ("FIMAI", a Luxembourg corporation). In connection with the
formation of the Company, the Company and FIMAI entered into a Manufacturing and
Distribution Agreement (the "Distribution Agreement") which appointed FIMAI as
the exclusive manufacturer, purchaser and distributor for the Company's CTX 5000
systems in Europe. At December 31, 1994, the Company had obtained a temporary
consent from FIMAI for the Company to manufacture and sell the CTX 5000 in
Europe. In April 1995, FIMAI transferred all of its shares of the Company to
HARAX Holding, S.A. ("HARAX," a Luxembourg Corporation) and ElectroParts
Holding, S.A. ("ElectroParts," a Luxembourg Corporation). Both Harax and
ElectroParts have significant common ownership with FIMAI. As a consequence of
the transfer of ownership, FIMAI's rights under the Distribution Agreement were
transferred to HARAX and ElectroParts.

    In June 1995, the Company issued 56,818 and 170,455 shares of Series D
Preferred Stock to ElectroParts and HARAX, respectively, in exchange for the
cancellation of the Distribution Agreement. Pursuant to Securities and Exchange
Commission Staff Accounting Bulletin No. 48, this transaction is valued at zero,
the historical cost basis of the Distribution Agreement to ElectroParts and
HARAX.

    During 1995 and 1996, the Company paid $116,000 and $264,000, respectively
to certain of the Company's directors for professional and/or consulting
services. In May 1995, the Company issued 649,434 shares of Series D Preferred
Stock to HARAX in satisfaction of $2,429,000 of indebtedness. In June 1995, the
Company issued 13,368 shares of Series D Preferred Stock to an officer of the
Company in satisfaction of $50,000 in indebtedness.

                                     F-15


<PAGE>
                          INVISION TECHNOLOGIES, INC.
 
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
 
NOTE 12--SUBSEQUENT EVENTS:

  NEW FACILITY LEASE

    In February 1997, the Company entered into a new lease for its future
primary operating facility. The Company plans to relocate to the new facility in
mid- 1997 upon the completion of tenant improvement construction. The lease
covers an initial ten year term and includes a five year renewal option. The
initial rental rate of $672,000 per year increases annually to $1,326,000 in
year ten. The Company plans to sub-lease its current primary operating
facilities subsequent to its relocation. Based on current market rental rates
for similar facilities, the Company estimates that sub-lease rental rates will
not be less than the Company's existing rental rate for the remainder of the
lease term.

  LINE OF CREDIT

    In February 1997, the Company entered into two one-year revolving line of 
credit agreements with Silicon Valley Bank. The first agreement provides for 
maximum borrowings generally in an amount up to the lower of 80% of eligible 
domestic accounts receivable or $4.5 million. Borrowings under this agreement 
generally bear interest at the bank's prime rate plus 1.00% per annum (9.25% 
at December 31, 1996). The second agreement is partially guaranteed by the 
Export-Import Bank of the United States and provides for maximum borrowings 
generally in an amount up to the lower of (i) the sum of 90% of eligible 
export accounts receivable plus 70% of eligible raw materials and 
work-in-process inventory designated for export customers, (ii) $4.5 million 
less outstanding letters of credit or (iii) $3.0 million. Borrowings under 
this agreement generally bear interest at the bank's prime rate plus 0.75% 
per annum (9.00% at December 31, 1996). Borrowings under both agreements are 
secured by all of the Company's assets. The agreements require that the 
Company maintain certain financial ratios and levels of tangible net worth 
and profitability and also prohibit the Company from paying cash dividends. 
Proceeds of loans under the first line of credit may be used for general 
corporate purposes and proceeds of loans under the second line of credit must 
be used to finance goods intended for export.


                                     F-16