<PAGE>
                          SECURITIES AND EXCHANGE COMMISSION
                                Washington, D.C.

                                   FORM 10-KSB

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

               For the fiscal year ended:  September 30, 1995    

                                       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:   0-8632


                              MEDICAL DYNAMICS, INC.              
             (Exact name of Registrant as specified in its charter)

          Colorado                                      84-0631765      
(State or other jurisdiction of                       (IRS Employer 
incorporation or organization)                    Identification Number)


         99 Inverness Drive East
           Englewood, Colorado                                   80112  
(Address of principal executive offices)                      (Zip Code)


              Registrant's telephone number, including area code: 

                                 (303) 790-2990 

          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, and (2) has been subject to such filing
requirements for the past 90 days. 

                             (1) Yes   X   No _____
                             (2) Yes   X   No _____
<PAGE>

     Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B, and no disclosure will 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-KSB or any amendments to
this Form 10-KSB. [ ]

     The issuer's revenues for its most recent fiscal year were $1,195,200.

     The aggregate market value of the voting stock held by non- affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of September 30, 1995 was approximately
$8,819,500.

Class                                     Outstanding at September 30, 1995

Common Stock                                      6,879,500 shares

                   Documents incorporated by reference:  None
<PAGE>
                              MEDICAL DYNAMICS, INC.

                                  FORM 10-KSB 

                                     PART I 

Item 1.        Business.

     (a)  Business Development

     Medical Dynamics, Inc. and MedPacific Corporation, its wholly owned
subsidiary (the "Registrant"), are engaged in the design, development,
manufacture and marketing of medical video cameras and related surgical
disposable products for a variety of medical specialties.  The Registrant's
principal products are small, color, medical video camera systems for use in
medical diagnosis and surgical procedures.  The Registrant has been
manufacturing such cameras since August of 1981.  The Registrant's principal
executive offices and manufacturing facilities are at 99 Inverness Drive East,
Englewood, Colorado, 80112.  Its telephone number at that address is (303) 790-
2990.

     The Registrant was incorporated under the laws of the State of Colorado on
March 23, 1971, and began operations in 1973.  During 1979, the Registrant began
its involvement with medical video camera systems.  Initial operations relating
to such cameras consisted of the Registrant's purchase of completed cameras from
their manufacturer and the retail sale of those products to the medical
community.  Exclusive marketing rights to a camera system manufactured by
another company were acquired and the Registrant served as the distributor of
that product until the arrangement was terminated in July of 1981.  In August of
1981, the Registrant introduced its first medical video camera of which it was
the manufacturer.  Thereafter, additional cameras were acquired or developed by
the Registrant.

     During the fiscal year ended September 30, 1995, the Registrant was not
involved in any bankruptcy, receivership or similar proceeding nor did it engage
in any material reclassification, merger or consolidation.  During that period,
the Registrant did not dispose of any material amounts of its assets other than
in the ordinary course of its business, with the exception of patent licensing
agreements, see note 3 to the financial statements.

     On October 1, 1989, the Registrant acquired all of the outstanding shares
of MedPacific Corporation from Viox Corporation in exchange for 195,000 shares
of the Registrant's Common Stock.  Included in this acquisition was a trademark
and exclusive license to produce, market and distribute the Laser Doppler
through March 1994.  This investment was fully written-off in the fourth quarter
of Fiscal 1992.  See "Model LD6000 Laser Doppler" under (b)(1) of this Item 1.

     During fiscal 1995 the Registrant entered into a distribution agreement
with Micro-Medical Devices, Inc. (MMD), of Castle Rock, Colorado. MMD is a
corporation formed by and 100% wholly-owned by the Registrants Chairman. MMD
manufactures and sells medical products to the Registrant. The distribution
agreement signed with MMD will allow the Registrant more flexibility in matching
inventory requirements and purchases with currently anticipated sales, thereby
reducing inventory carrying costs. See item 12 - Certain Relationships and
Related Transactions, "Distribution Agreement."

     (b) Business of the Issuer


     The Registrant's principal business is the design, development, manufacture
and marketing of medical video cameras and related surgical disposable products
for a variety of medical specialties.  These products are used in surgical,
diagnostic, research and teaching applications by physicians and other health
care professionals.

     In recent years, a variety of less invasive diagnostic and surgical 
techniques have been developed.  Such techniques enable operations to be
performed or observation to occur with minimal surgical incisions.  Among the
most common of such surgical techniques is the arthroscopic operation used by
orthopedic surgeons.  That surgical technique is made possible by means of a
rigid endoscope known as an arthroscope.  The arthroscope is a high quality
optical instrument which is a tube approximately four millimeters in diameter. 
A light source is attached to the arthroscope and it is inserted through a small
incision made in the patient's body.  The surgeon is able to observe inside the
joints through the lenses of the arthroscope and special surgical instruments
are used to perform corrective surgery without open surgery.  Arthroscopy has
obtained widespread acceptance by orthopedic surgeons and is commonly used to
remove damaged cartilage tissue which may result from athletic and other
injuries.  The use of the technique is less destructive of healthy tissue and
thereby decreases the time necessary for healing of the damaged area and reduces
the costs of hospitalization and rehabilitation.

     A much more common surgical technique involves the use of a rigid endoscope
known as a laparoscope.  The laparoscope is used in much the same way as the
arthroscope, but is limited primarily to use in the abdominal area.  The latest
technique involves the use of the laparoscope to remove the gall bladder, a
procedure commonly known as laparoscopic cholecystectomy.  The laparoscope also
is used to perform appendectomies, kidney removal and certain gynecologic
procedures.  The gynecologic usage accounts for the majority of all laparoscopic
procedures at this time.

     The Registrant's camera systems are utilized in conjunction with an
arthroscope, laparoscope or other endoscope.  They may also be connected with a
microscope for use in microscopic surgery such as hand or eye surgery.  The
image which may be seen by the surgeon through the endoscope or microscope is
viewed by the camera and transmitted to a television monitor.  This use of a
video camera provides an image which may be viewed by all persons in the
operating room, diagnostic laboratory or classroom.  The ability to observe the
surgery permits the support staff to anticipate the needs of the surgeon and
provides a mechanism which facilitates instruction of others.  Additionally, the
surgeon is provided with a television screen used to reduce intervals of viewing
through the endoscope, thereby attenuating eye fatigue.  The video camera may
also be attached to peripheral equipment which enables the image to be
recorded. The procedure and the patient may thereby be studied at a later time.

     As of September 30, 1995 and 1994, the Registrant had approximately $60,400
and $98,600, respectively, in firm backlog orders for its products.  Backlogs
are not recorded in sales revenue until the order is shipped.

(b)(1)  Principal Products and Their Markets.

     Models 5960, 5970 and 5980 Cameras.  The Registrant currently manufactures
and markets a video camera which is designed for most endoscopic applications. 
Previously, differing light conditions for varying procedures required that
different camera models be provided.  The current camera models, the 5960, 5970
and 5980, contain a high performance video sensor which provides a brighter
picture in lower light level environments than prior solid state cameras.  In
July 1990, the Model 5960 replaced the model 5940 in the United States.  In
October 1992, the Model 5970 replaced the Model 5960 in the United States.  The
Model 5980 utilizes a more advanced "Digital" base camera which provides
enhanced visualization of the affected areas of the body without the aid of an
automatic light source.  These models are submersible for liquid sterilization,
and have a detachable cable (facilitating replacement of the most frequently
failing component).

     The construction of the Registrant's camera is from standard video camera
components which are purchased from major manufacturers of video cameras.  The
Registrant disassembles the components to enable its cameras to be separated
into the camera head and power unit.  The electronics are also adjusted as
necessary.  The Registrant adjusts the focal length of the camera to match the
particular endoscope or microscope with which the camera will be used and makes
other adjustments to each camera so that the camera will be suitable for use
with the particular endoscope and in the particular application for which it is
intended.  The Registrant produces variations of the Model 5980 camera for use
with European format video equipment and to meet specifications of original
equipment manufacturer ("OEM") customers.  These OEM customers market the
cameras under their labeling.  As a camera accessory, the Registrant offers a
character generator whereby a keyboard is used to generate and display patient
case data, including such items as date of procedure, patient name, physician,
surgical procedure and elapsed procedure time.

     During the years ended September 30, 1995, and 1994 approximately 15 and
10, respectively, Model 5960, 5970, and 5980 cameras were sold by the Registrant
at prices ranging from $1,600 to $8,075.

      The Model 5990 Optical Catheter SystemTM.  In June 1989 the Registrant
introduced a new product in the micro-invasive surgery field, its 5990 Optical
Catheter System.  The Registrant developed this product from technology
originally developed by the Chairman and licensed to the Registrant in response
to the trend toward less invasive and less expensive diagnostic and surgical
procedures which now are being performed in physicians' offices and outpatient
clinics.  The system was under development for three years and a prototype was
introduced to the medical community during fiscal 1988.  The Registrant is
manufacturing the 5990 Optical CatheterTM System in its facility and commenced
marketing in June 1989.  During the fiscal years ended September 30, 1995, and
1994, 10 and 18 Model 5990 Optical Catheter systems were sold by the Registrant,
netting sales of approximately $87,500, and $158,200 respectively.  

     The 5990 Optical Catheter System consists of a modular console containing a
video camera, a light source, and a monitor.  A flexible, small diameter
endoscope utilizing the smallest, most flexible and versatile fiber optic image
bundles available is attached to the console.  This endoscope allows medical
specialists to examine almost any area in the body with a puncture as small as
that caused by a standard hypodermic needle.

     The optical fibers contained in the endoscope transmit light from the
console to the lens at the tip, and transmit the image from the lens to the
camera in the console.  The image is then displayed on the video monitor.  The
endoscopes which can be used with the console range from .5 millimeters up to
1.9 millimeters in diameter.  Images produced by the 5990 Optical Catheter
System can be preserved by use of recording and printing devices already
marketed by the Registrant.

     The 5990 Optical Catheter System in the future may be configured into a
"Smart" Optical Catheter System by including additional diagnostic devices with
the image sensor.  The basic System includes only the image sensor as described
in the foregoing paragraphs.  The Registrant has developed or purchased
additional components which can be inserted through the same catheter.  These
additional components can monitor and measure pressure, temperature, capillary
blood flow, fluorescence and oxygen saturation levels to assist a physician in
whatever procedure he or she may be performing on a patient.  Although
monitoring and measuring such functions is by no means a new concept,
traditional methods use a separate piece of equipment which is not an integral
part of the viewing system and which require an additional entry way into the
body.  In the 5990 System, because these additional devices can be inserted
through the same catheter which is an integral part of the viewing system, the
physician has the ability to view placement of the measuring devices to obtain
optimum readings.  The features of the Optical Catheter System which allow
direct coupling of the diagnostic devices to the image sensors and which convert
the light signals into usable diagnostic information are patented to the
Registrant.

     The Optical Catheter System is designed for use in every surgical and
medical specialty.  As noted, the optical catheter itself can be made very small
in diameter (small enough to fit through a 20 gauge hypodermic needle) and can
be made to any length.  Lengths up to 180 inches have been made without loss of
picture quality.  The terminal end of optical catheter which contains one or
more lenses can be made in any configuration including flexible, rigid and
steerable, to suit any procedure required by the physician.  Steerability of the
terminal end can be in one direction, or in many directions.  The Optical
Catheter device therefore, is suitable for a wide variety of uses such as
looking into joints, the ventricles of the brain, around the spinal cord,
through the abdominal wall to look at structures within the peritoneum, or
examining the fetus inside the uterus and peering into small diameter blood
vessels.

     Models 6400, 6500 and 6600 Light Sources.  The Registrant currently
produces several light sources used in various procedures in conjunction with
the model 1001.00, 5980 and 5500 cameras.  The Registrant began production of
the model 6500 light source during its 1990 fiscal year and began to market and
produce the model 6600 light source during fiscal 1993.  The Company began
production of the model 6400 light source during fiscal 1995.  All model numbers
represent current lines used for Arthroscopy, Laparoscopy and various other
endoscopic procedures and vary only in the amount and frequency of light emitted
from each piece of equipment.  The Registrant sold 39 and 26, new light source
units during fiscal 1995 and 1994, respectively, netting sales of $137,100 and
$99,100.

     Adair/Veress NeedleTM.  The Registrant has sold 1,402 and 1,044 units of a
needle used to perforate the abdominal wall for fiscal years ended September 30,
1995 and 1994.  Total sales of this product during fiscal 1995 and 1994 were
approximately $26,700 and $28,400, respectively.  The Medical Dynamics 5990
catheter and other manufacturers fiber scopes can be inserted through the
needle, facilitating viewing of affected areas of the abdomen without an
incision.  The Registrant developed this needle in anticipation of its use in
emergency rooms and for certain established laparoscopic procedures.  The needle
has FDA approval and is patented.  See (b)(7) under this Item 1 below.

     Peripherals.  The Registrant provides a variety of products designed for
use in connection with its cameras.  Because the Registrant's cameras are used
with a variety of endoscopes and microscopes requiring varying light sources,
optical couplers must be supplied to enable connection of the camera, light
source and endoscope.  These optical couplers are made by a supplier.  The
Registrant also provides the video monitors for use in connection with its
cameras.  These monitors are purchased from major electronics manufacturers and
then disassembled and modified as needed for medical uses.  Installation of
medical grade cords, plugs, conductive castors, opto-isolation for control of
current leakage and remote footswitching are a few of the modifications
provided.  Similarly, video cassette recorders of major manufacturers also are
purchased by the Registrant, modified and resold for use in connection with its
medical cameras. 

     The Registrant continues to market the video printer which it introduced in
the fiscal year ended September 30, 1986 and the video floppy introduced during
the fiscal year ended September 30, 1987.  The video printer enables a video
image to be stored on a photographic print while the video floppy unit records
field-still pictures on a 2x2 still video floppy.  During the fiscal years ended
September 30, 1995 and 1994, the Registrant sold approximately 3 and 8 video
printer units netting sales of $12,400 and $32,900, respectively.  Additionally,
1 and 1 video floppy units were sold during the same periods generating net
sales of $1,200 and $1,800, respectively.  Sales of related video supplies
totaled $34,842 and $71,220 for these same respective periods. 

     Cam-WrapTM.  The Registrant markets a sterile camera cover (the Cam-Wrap)
which permits the head and cable of soakable and non-soakable cameras (which
cameras were previously manufactured and sold by the Registrant and others) to
be draped for sterile requirements of operating rooms.  The plastic camera cover
is manufactured for the Registrant by a non-affiliated company.  Approximately
21,400 and 23,100 units were sold in fiscal 1995 and 1994, respectively, for
total sales of $202,500 and $217,500.  

     Bayne Pap BrushTM.  During the fiscal year ended September 30, 1987, the
Registrant started manufacturing and marketing a disposable product used to
collect cells for Pap smears.  The Bayne Pap Brush is constructed of DuPont
nylon fibers that can be fitted to any position in or on the cervix.  The Bayne
Pap Brush collects 10 to 100 times more cells than traditional techniques which
significantly decreases the number of false negative Pap smears.  Dr. Dean
Bayne, the developer of the Bayne Pap Brush, is a director and former employee
of the Registrant.  The Registrant sells a minimal amount of these brushes
annually.  Approximately 18,500 and 18,700 units were sold in fiscal 1995 and
1994, respectively, for total sales of $9,990 and $9,930.  The Registrant
discontinued the production and sale of this device during fiscal 1995 and is
interested in licensing the patent and technology of this product to a third
party experienced in the distribution, manufacturing and marketing of high
volume disposable products.  See "Item 12 - Certain Relationships and Related
Transactions."  

     Model LD6000 Laser Doppler Blood Flow Monitor.  The Laser Doppler is an
apparatus enabling the measurement of capillary blood flow using coherent light.
The unit can be used as a stand alone product or can be combined with the
Registrant's Optical CatheterTM System to view and monitor (via laser light) the
healing process of affected areas.  The Registrant has not sold any units of the
LD6000.  The main use of the laser doppler will be to measure capillary blood
flow of cancerous tissue after the application of certain photo-dynamic therapy
drugs have been administered to the affected regions.  These photosensitizers
emit fluorescent properties which then can be useful in the localization of
cancerous tissue.  This device when married with the Registrant's Optical
Catheter System is expected to form the basis for a Fluorescence Detection
System/Photodynamic Therapy System to be developed in the future, in conjunction
with patents owned or licensed by the Registrant regarding the delivery of laser
light through endoscopes.

     Electronic Video Laparoscope (EVL).  The Model 5500 is a rigid endoscope
that utilizes the latest in image processing without the need for multiple
optical coupling lenses.  The endoscope also eliminates the need for coupling
and light source enhancement because it incorporates these features within the
design.  The Registrant introduced this product in October 1992 and commenced
active marketing in April, 1993.  During the fiscal years ended September 30,
1995 and 1994, the Registrant sold 35 and 28 units of the EVL control module, to
both domestic and foreign markets generating net sales of $175,800 and
$127,200. Total gross revenues for all EVL associated products, which
includes ancillary scopes, umbilical cables, heads and control modules
totalled $264,600 and $326,600 for the respective fiscal years. 

     Unlike a conventional surgical camera system which utilizes a separate
camera head and coupler that never enters the body, the EVL incorporates an
image sensor chip at the tip of the laparoscope.  As a result, the EVL, dubbed
"Chip on a Stick", places the imaging chip in closer proximity to the anatomy
being viewed, thereby creating a significantly higher resolution picture and
increased illumination.  With the elimination of the ancillary head and coupler,
the Registrant has created a lighter weight device that requires only an
optional focusing or magnification mechanism and eliminates the problem of
fogging between the coupler and eyepiece.  All of these features add up to a
safer, more efficient device for use by surgeons.  

     In addition to the diagnostic versions of the EVL in 0 and 30 degree
viewing angles, the Registrant received FDA approval in September, 1994 for the
Operative Video LaparoscopeTM in both 3 and 5 millimeter working channels. 
These devices are believed to be a significant improvement over existing
operative scopes on the market in that they allow the same bright, high
resolution picture as the standard EVL, with additional capability to insert
operative instruments or laser fibers through the working channels.  Most
competing operative scopes lack illumination and picture quality due to their
less-than-optimal configuration.  These devices have been added to the current
product line.  

      Lap-WrapTM.  In conjunction with the EVL, Medical Dynamics also
markets the Lap-Wrap, a disposable sterile sheath and sleeve for the EVL and
other manufacturers' brands of laparoscopes and camera systems.  The product
is part of the Company's line of higher-margin disposable accessories.  The
Lap-Wrap is a low cost alternative ($24 list) to current sterilization and
disinfection techniques.  It reduces repair costs on scopes and camera
systems, and also eliminates the potential environmental and health hazards
associated with exposure to chemical soaking solutions or ETO (gas)
sterilization.  During the fiscal years ending September 30, 1995 and 1994,
314 and 689 cases of Lap-Wrap were sold resulting in revenues of $49,100 and
$117,500, respectively.  Both the EVL and Lap-Wrap, which combine to form a
patented device, have been licensed (See Licenses in Part I (b)(7)) to
Medical Dynamics by the inventor and Chairman of the Registrant, Dr. Edwin L.
Adair.  

     Universal Sterile Endoscopy SystemTM (USESTM).  At the end of fiscal 1995
the Registrant introduced this new product.  It consists of a non-soakable
camera system that utilizes a proprietary "closed system" drape with each use. 
The advantages of this system over competitors models is the ability to have an
absolutely sterile camera for every surgical case, at approximately one-third
the price of competing models.  Fiscal 1995 sales were minimal as the product is
in the introductory stage.  See item 12 - Certain Relationships and Related
Transactions, "Distribution Agreement."

     Inventory.  The Registrant is required to carry significant quantities of
inventory to meet rapid delivery requirements of customers or to assure itself
of a continuous allotment of goods from suppliers.  The Registrant has continued
to maintain its inventory of components on its Models 5500, 5960, 5970, and 5980
cameras; the 5990 Optical CatheterTM System, and various peripherals. 
Sufficient quantities of the Registrant's disposable product line such as
Lap-Wrap and Cam-Wrap must also be maintained in anticipation of customer's
future needs.  The Registrant typically sells product on a net 30 day basis to
all domestic customers and a net 60 to 90 day basis to foreign customers and
distributors.  With some exceptions, most foreign distributors post letters of
credit to insure payment on orders.  Inventory levels net of allowance for
obsolescence for the fiscal years ended September 30, 1995 and 1994 were
$948,500 and $984,300 respectively.

     Warranty.  The Registrant's medical video cameras are warranted for a one-
year period with respect to parts and labor required as a result of defects in
material and workmanship.  Cables and optical couplers are warranted to be free
of defects for a period of 180 days.  Defects or malfunctions are corrected by
the Registrant at the Registrant's cost, if the applicable conditions to the
warranty are satisfied.  In the event warranty repairs cannot be effected within
five days, the Registrant generally provides loaner cameras for customer use. 
Failures normally occur during the early life of the cameras, and repair
expenses usually occur in the same year in which the camera is initially placed
in service.  The Registrant estimates future warranty costs and enters the
estimated expenses into its results of operations based upon historical
experience and revenues currently reported.  The estimated warranty reserve at
fiscal year end September 30, 1995 and 1994 was $25,000 and $50,000,
respectively.

(b)(2)   Distribution Methods

     The Registrant's video camera systems and disposable medical products are
sold principally to physicians and hospitals.  The Registrant has engaged in
marketing and advertising of its products at professional seminars and specialty
meetings, direct mail promotions, telemarketing, and through a sales
representative network.  During the years ended September 30, 1995 and 1994, the
Registrant expended $258,800 and $254,200, respectively, on sales promotions,
conventions and advertising expenses. 

     The Registrant has engaged approximately 18 organizations with
approximately 38 field sales representatives to market its camera systems in the
United States.  Most major domestic sales territories are covered by the current
sales representative network.  The sales representatives enter into a one year
agreement with the Registrant under which they receive commissions of 15% to 20%
on video camera sales revenues, 10% to 15% on camera accessories and 10% to 20%
on disposable product sales generated by them in exclusive marketing areas.  All
selling expenses are borne by the sales representative.  The sales
representative agreements prohibit each representative from purchasing or
dealing in products of competitors of the Registrant.  In addition to sales made
in this manner, the Registrant also modifies some of its products to display the
labeling of its customers.  Those customers then sell the products directly to
end-users. 

     As of the fiscal year ended September 30, 1995, the Registrant engaged
approximately 12 agents to sell video cameras in areas outside the United
States.  The primary foreign territories where the Registrant has distributors
are Japan, United Kingdom, Western Europe, Spain, and Latin America.

     During each of the past two fiscal years, sales of various models of video
camera systems (including ancillary camera equipment) contributed more than 15%
of the Registrant's total revenue.  The percentages of the Registrant's revenues
contributed by this product group during the fiscal years ended September 30,
1995 and 1994 were 36% and 40%, respectively. 

(b)(3)   Status of New Products.

The Registrant has several products which are in various stages of
development.  

     3-D Electronic Video LaparoscopeTM (patent pending).  Medical Dynamics has
developed a prototype (not yet FDA approved), through its licensing agreement
with the Registrant's Chairman, of this new technology, which combines two EVL
systems within a single laparoscope to produce a three-dimensional view of the
target area.  In laparoscopic surgery, where surgeons are required to grasp and
manipulate organs, vessels and tissue, the depth of field obtained through 3-D
is superior to the "flat field" effect of two-dimensional camera systems.  A
commercial product is expected to be introduced within two years provided the
market warrants such an introduction and FDA approval is received.  

(b)(4)   Competition.

     With regard to the Registrant's medical video cameras, the principal
competitive factors to which it is subject are price, technological
configuration, product performance, and product line diversification.  Principal
competitors in the United States include Circon/ACMI Corporation, Stryker
Corporation, Olympus, Wolf, and Karl Storz, each of which manufactures and sells
some form of medical video system, and there are certain competitors overseas. 
The principal reasons why sales volumes remain volatile are fluctuating OEM
revenue, the limited product line presently offered by the Registrant, a limited
amount of capital available to promote the products through successful marketing
efforts and distribution channels, and the continuing uncertainty surrounding
the effects of a proposed national health care plan.  Such limitations have
proven detrimental to the ongoing operations of the Registrant to date.  The
industry has experienced a contraction of camera manufacturers over the past
several years but the Registrant anticipates that other companies may enter into
the manufacture and sale of small color video systems, thereby causing further
competition in this field.  The prices charged and warranties provided by the
Registrant and competing manufacturers of surgical video camera systems are
similar.

     The Registrant's 5990 Optical Catheter SystemTM is protected by a number of
patents licensed to the Registrant by it's Chairman, and to the Registrant's
knowledge, no similar systems are presently being marketed.  Both the 5990
Optical Catheter System and the 5500 EVL are subject to competition from the
Registrants model 5980 camera and similar cameras manufactured by the
Registrant's competitors, although the Registrant believes the 5990 is more
suitable for office use than such other cameras.

(b)(5)  Availability of Raw Materials.

     For a number of years, the Registrant had purchased cameras from Panasonic
Industrial Company - Audio Video Systems Group ("Panasonic") exclusively.  The
Registrant now procures cameras from additional sources without sacrificing
product or picture quality.  Management believes the additional product
resources, combined with current purchasing practices more in line with "just-
in-time" inventory management, are beneficial to the Company.  The Registrant
has entered into an agreement with a United States manufacturer to supply the
head cables used in its camera products and has negotiated a similar agreement
with another United States manufacturer.  If these sources of head cables were
not available, the Registrant believes it would be materially affected, as other
sources for these camera head cables may not be available to the Registrant.

(b)(6)  Principal Customers.

     The Registrant had one customer who contributed 10% or more of gross
revenues for fiscal year 1995.  There were two such customers during fiscal year
1994.  Gross billings to Rosot Enterprises of Locust Valley, New York during
fiscal years 1995 and 1994 were $297,700 and $189,300 or 23.1% and 12.2% of
Registrant revenues, respectively.  Rosot Enterprises is an international
distributing company which concentrates on Mexico, Central and South America. 
During fiscal year 1994 Shipments to Endosurgical Development Corporation (EDC)
of Rolling Hills, California totaled $227,000 or 14.7% of the Registrants gross
billings.

(b)(7)         Patents, Trademarks, etc.

     Patents.  Although the Registrant does not own any patents relating to its
Optical Catheter SystemTM, it holds an exclusive license on three patents
related to this camera system.  United States Patents No. 4,782,819, No.
4,736,733, and No. 4,754,328 expiring November 8, April 12, and June 28, 2005,
respectively, relating to the Optical CatheterTM are owned by Dr. and Mrs. Adair
and licensed on an exclusive basis to the Registrant.  The terms of the license
agreement are described under "Licenses" below.  In addition, Dr. and Mrs. Adair
have applied for several more patents on behalf of the Company relating to the
5990 Optical CatheterTM System, which applications are pending at the date of
this filing.

     In addition to the above referenced patents, the following patents are also
licensed to the Registrant from the Chairman:

<TABLE>

<CAPTION>

TITLE                         ISSUE DATE           PATENT NUMBER

<S>                            <C>                 <C>        
"Laser Endoscope"               5/20/86             4,589,404

"Laser Endoscope" (Divisional)  6/28/88             4,754,328

"Endoscope with Removable       4/12/88             4,736,733
Eyepiece"

"Gas Insufflation Needle with   9/26/89             4,869,717
Instrument Port" (Adair Veress
Needle)

"Rigid Video Endoscope with    11/07/89              4,878,485 
Heat Sterilizable Sheath"
(EVL and Lap-Wrap)
Reissue                         3/24/92              RE 33854

"Deformable and Removable 
Sheath for Optical Catheter"   3/30/93              5,197,457

"Deflectable Sheath for        6/30/92              5,125,395
Optical Catheter"

"Heat Sterilizable Electronic  2/23/93              5,188,094
Video Endoscope"
(Autoclavable EVL)

</TABLE>

     The Registrant has also licensed the rights on pending patents covering
such technology and devices as "Miniaturized Electronic Imaging Chips", "Imaging
Tissue or Stone Removal Basket", "Steerable Sheath for use with Selected
Removable Optical Catheter", and "Stereoscopic Endoscope", among others.

     The Bayne Pap BrushTM is subject to United States Patents No. 4,762,133,
No. 4,754,764 and No. 4,873,992 expiring August 9, 2005 through October 17,
2006.  Dr. Bayne, a director of the Registrant, assigned these patents to the
Registrant and is entitled to receive a royalty of two percent of net sales of
the product after recovery of certain expenses.  No royalties have been accrued
or paid to Dr. Bayne on this product.

     Trademarks.  The Registrant is also the holder of United States Trademarks,
registration numbers 1,299,413, 1,299,414, and 1,719,664 which relate to the
name "Medical Dynamics", the corporate logo of the Registrant, and the
Adair/Veress Needle respectively.  The trademarks are granted for a term of 20
years expiring October 8, 2004, and if still in use at that time may be renewed
for successive 20-year periods by application.  In addition, the Registrant
claims rights in numerous unregistered trademarks which it uses in interstate
commerce, and which are subject only to common law protection.  Additionally,
the Registrant holds trademark registration number 1,282,319 which relates to
the name "MedPacific Corporation" and its corporate logo.  This Trademark was
renewed for a 20 year term in June 1990.  The Registrant also has trademark
applications pending on a variety of products including the EVL and Lap-WrapTM.

     Licenses.  The Registrant entered into an exclusive revocable license
agreement with Dr. Edwin Adair effective June 3, 1987, as amended, relating to
use of certain technology invented and developed by Dr. Adair relating to
certain malleable endoscopes, flexible optical catheters, the Adair/VeressTM
needle and complementary viewing systems for use in connection with detection,
diagnosis and treatment of disease or injury in humans and animals.  The
Registrant used this technology to develop the 5990 Optical CatheterTM System,
the Electronic Video Laparoscope (EVL), and the Lap-WrapTM.  Dr. Adair is
entitled to receive a royalty equal to the greater of two percent of net sales
involving the licensed technology or a minimum annual royalty.  Since inception
and through September 30, 1995, $510,000 has been paid to Dr. Adair under this
license agreement, and an additional $90,000 has been accrued.  See Item 12,
below for more information regarding license agreements.

(b)(8) and (9)  Government Regulation.

     The United States Food and Drug Administration (the "FDA"), pursuant to the
Medical Device Amendments of 1976 to the Food, Drug and Cosmetic Act (the "Act")
and regulations promulgated thereunder, regulates the testing, manufacturing,
packaging, distribution and marketing of medical devices in the United States,
including the products manufactured by the Registrant.

     The Act requires manufacturers of medical devices to register annually and,
semi-annually, to list new devices being produced by the manufacturer for
commercial distribution.

     The Act also classifies medical devices and requires compliance with
specific manufacturing and quality assurance standards.  The FDA has published
regulations defining good manufacturing practices to provide that each step of
the manufacturing process for any device is controlled to maximize the
probability that the finished product meets all quality and design
specifications.  The regulations also require that each manufacturer establish a
quality assurance program by which the manufacturer monitors the manufacturing
process and maintains records which show compliance with the FDA regulations and
the manufacturer's written specifications and procedures relating to the
devices.

     The Registrant's facilities and records are subject to periodic unannounced
inspections by the FDA for compliance with the applicable FDA regulations.  The
FDA may issue reports or citations where the manufacturer has failed to comply
with all appropriate regulations and procedures.  If the FDA finds a
manufacturer not to be in such compliance, the FDA may prohibit a manufacturer
from marketing the products for which the manufacturer is not in compliance,
until such time as the manufacturer complies with the applicable FDA regulations
with respect to those products.  Compliance with the provisions of the Act and
the FDA's regulations is time consuming and expensive due to the extensive
record keeping required.  

     During October, 1994, The Federal Food and Drug Administration performed a
routine inspection of the Registrant's premises and issued a Form 483
"Inspectional Observations" itemizing certain deviations in the Registrant's
sterilization procedures from that required in the FDA's regulations.  The
registrant has responded with a letter defending it's practices and to date has
received no further response from the FDA.  If the FDA continues to request the
proposed changes after receipt of the company's response, the registrant will
implement the requested changes.  Management expects no negative product or
financial ramifications from this action, although no assurances to that effect
can be made.

(b)(10)  Research and Development.

     During the fiscal years ended September 30, 1995 and 1994, the Registrant
spent approximately $228,100 and $142,500, respectively, on company-sponsored
research and development activities.  During those periods, there were no
customer-sponsored research activities relating to new products, services, tech-
niques or to the improvement of existing products, services or techniques.

(b)(11)  Compliance With Environmental Laws.

     The Registrant is not materially affected by federal, state and local
provisions which have been enacted or adopted regulating the discharge of
materials into the environment or otherwise  relating to the protection of the
environment. 

(b)(12)   Employees.

     At September 30, 1995, the Registrant employed 18 persons, including 4
persons engaged in general administration, and 14 persons engaged in production,
distribution, and customer service of the Registrant's products.

Item 2.        Description of Property.

     The Registrant leases 18,358 square feet of space at 99 Inverness Drive
East, Englewood, Colorado, where its principal executive offices are located and
its business activities, including research, assembly, storage and customer
service, are conducted.  The Registrant has used the bulk of these facilities
since 1981.  A three-year extension to the lease expired December 31, 1995. 
This lease has been renewed for an additional three-year term, expiring on
December 31, 1998.  The current lease and all extensions obligate the Registrant
to pay monthly rentals in the following amounts: 

     Through December 31, 1995                    $11,075
     January 1 - December 31, 1996                $12,315
     January 1 - December 31, 1997                $13,080
     January 1 - December 31, 1998                $13,845

The Registrant pays certain maintenance, insurance, common area and other
expenses with respect to the property to the extent that the lessor's costs for
such items exceed a specified amount.  The Registrant also pays any increases in
property taxes due to improvements on the property and pays for utilities.

     The Registrant also rents temporary storage space in mini-warehouses
located near its principal executive offices.  During the fiscal year 1995 the
average monthly cost amounted to $380.

Item 3.   Legal Proceedings.

     There are no material pending legal proceedings or proceedings known to be
contemplated by governmental authorities.

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

     The Registrant has not submitted any matter to a vote of security holders
during the fourth quarter of the fiscal year ended September 30, 1995.

<PAGE>
                                    PART II 

Item 5.   Market for Common Equity and Related Stockholder Matters.

     (a)  Market Information

     The Registrant's $.001 par value common stock (the "Common Stock") is
traded in the over-the-counter market and price quotations for the two years
shown below were reported on the National Association of Securities Dealers
Automated Quotation System ("NASDAQ") under the symbol "MEDY".  The quotations
shown below were compiled by the Registrant from Monthly Statistical Reports
supplied by the NASD.  All quotes represent inter-dealer quotations, without
retail markup, mark-down or commission and may not necessarily represent actual
transactions in the Common Stock:

<TABLE>

<CAPTION>

                                           High bid         Low bid

     <S>                                   <C>               <C>
     Fiscal Year ended
     September 30, 1995

     First quarter                         $2.83            $1.00
     Second quarter                         1.69             1.00
     Third quarter                          2.19             1.00
     Fourth quarter                         1.69             0.94


     Fiscal Year ended
     September 30, 1994

     First quarter                         $6.63            $5.00
     Second quarter                         5.25             2.88
     Third quarter                          3.50             1.56
     Fourth quarter                         2.19             1.13

</TABLE>

     (b) Holders

     The number of record holders of the Common Stock, as of September 30, 1995,
was 13,604 not including an unknown number of beneficial holders in street name.

     (c) Dividends

     (c)(1)  Payment of Dividends.

     The Registrant has  never paid a dividend with respect  to its Common Stock
and does not intend to pay such a dividend in the foreseeable future.

     (c)(2)  Restrictions on the payment of dividends.

               There are no contractual restrictions on the Company's present or
future ability to pay dividends.

Item 6.        Management's  Discussion and Analysis  of Financial Condition and
               Results of Operations.

               Liquidity and Capital Resources.  (September 30, 1995 as compared
to September  30, 1994)   During the fiscal year  ended September 30,  1995, the
Registrant's current ratio declined to 7.2  as compared to 10.1 at September 30,
1994.   Net working capital decreased approximately $1,073,800, due primarily to
the use of cash in operations  and the resulting operating loss.  Cash  has been
used  primarily to  fund  the general  operations  of the  Registrant  including
research and development, and to promote the sales and marketing of products.

               Principal changes  in the components  of net working  capital for
the  twelve months ended  September 30, 1995  consist of a  decrease in accounts
receivable of $66,200,  a decrease  in trade notes  receivable of  approximately
$16,000,  Micro-Medical Devices, Inc. cash  advances of $110,000,  a decrease in
reported  inventory levels  by  $35,800  (net of  an  increase  in the  obsolete
inventory  reserve  of $100,000  and  non-cash  loaner  equipment  transfers  of
$15,700), net  purchases and sales of short  term investments with maturities of
60 days or less of $1,000,500, a reduction in prepaid expenses  of $9,200, and a
reduction in current liabilities by $7,800 to the current level of $354,300.

               During the twelve months ended September 30, 1995, the Registrant
experienced  a negative cash flow from operations of approximately $1,102,200 as
compared  to  a negative  cash flow  from  operations of  approximately $937,200
during the comparable period of  the prior fiscal year.  The  aggregate increase
in cash used for  operations during FY 1995 versus  FY 1994 was a result  of the
following factors:   Cash of $79,900 was used  in FY 1995 to  increase inventory
levels  of  current products  in anticipation  of  expected future  sales, where
during  FY 1994  the  Company  reduced  inventory by  the  amount  of  $226,300.
Accounts  payable, accrued  expenses  and product  warranty  costs were  reduced
during FY  1995  and FY  1994  requiring cash  outlays  of $7,800  and  $278,200
respectively.  Aggregate  trade accounts and  notes receivable cash  collections
reduced outstanding balances  by $66,200 during  FY 1995  versus a reduction  of
$267,500 during FY 1994.

                 To curtail operating losses, negative cash flow from operations
and liquidity erosion further, management  is continually reviewing all  expense
accounts to determine if any additional reductions in expenditures are possible.
Purchasing  procedures have also been  implemented to minimize  product cost and
avoid excess inventory levels.  

               During  Fiscal 1995  the Registrant  maintained  workforce levels
approximately the  same as the  levels of  fiscal year 1994.   Health  insurance
expense and property  and casualty insurance  expense were rebid  at the end  of
fiscal   1994  in  a  successful  effort  to  maintain  equivalent  coverage  at
significantly reduced  expense.   During  fiscal  1995 the  Registrant  realized
savings of approximately $19,400 in insurance expenses.

               A distribution agreement signed  with Micro Medical Devices, Inc.
will allow the Company  more flexibility in matching inventory  requirements and
purchases with currently anticipated  sales, thereby reducing inventory carrying
costs. See item 12 -  Certain Relationships and Related Transactions, 
"Distribution Agreement."

               The  Company also entered  into a revised  license agreement with
Dr. Edwin  Adair in  an  effort to  reduce patent  maintenance  costs and  other
associated costs.   In  addition, the Registrant  prepaid royalties  due to  Dr.
Adair for fiscal year 1996 by issuing an option to him in lieu of cash.

                Without significant sales increases, the Registrant anticipates
negative cash flow from operations for fiscal 1996 and beyond.  The Registrant's
future  viability  depends  on  its  ability  to  generate  cash  to  fund  it's
operations.  In the short term,  this was accomplished through equity placements
during  fiscal  1994,  and in  previous  fiscal  years  through  loans from  the
Registrant's Chairman.  However, the Registrant's ability to fund its operations
will be dependant upon achieving profitability and in generating a positive cash
flow from operations.  Unless the  Registrant is able to increase sales revenues
and maintain  profitability, the  Registrant may  be facing  significant working
capital shortages beginning in fiscal year 1996.  There can be no assurance that
the Registrant will  be able  to achieve  this goal as  there are  no new  sales
revenue sources at September 30,  1995. Should the Registrant be unable  to meet
future  minimum royalty payments to  the Registrant's Chairman beginning October
1, 1996, then under the terms of the licensing agreement the majority of  patent
rights  under  the agreement  could revert  back  to the  Registrant's Chairman,
unless  further  compensatory  arrangements   are  made.  Possible  compensation
arrangements could  include stock options  in lieu of  royalties or  deferral of
royalty   payments,  among  others.  No  assurances  can  be  given  that  these
arrangements will be made. The majority of the Registrant's products use patents
licensed to the Company by the Chairman. See item 12 - Certain Relationships and
Related Transactions, "Distribution Agreement."

               The Registrant  believes that its existing  capital resources are
sufficient  for the  current  fiscal year,  and  the Registrant  has  planned no
significant capital expenditures.  The Registrant is not seeking additional debt
or  equity capital  at  this time.    If, however,  the  Registrant does  obtain
additional capital  (of which there can be no assurance), the Registrant will be
able  to allocate  more  resources to  sales  and marketing  efforts  (including
negotiations with prospective OEM relationships), and research and development.

               Results of  Operations.    (September 30,  1995  as  compared  to
September  30, 1994)   As  an aid  to understanding  the Registrant's  operating
results, the following table indicates the percentage relationships of principal
revenue  and  expense items  to  total net  sales  included in  the consolidated
statements of  operations for the years  ended September 30, 1995,  and 1994 and
the percentage changes in those items for the same years.

<TABLE>

<CAPTION>

      As a percent of total
      revenue for the years                             Percentage
       ended September 30,                              change from
              1995      1994        Revenue/ExpenseItems     FYE 1994to FYE 1995
       ----        ----          ---------------------      --------------------
     <C>          <C>                <S>                              <C>
     100.0%       100.0%             Net sales                        (17.4%)
      93.1%        84.3%             Cost of goods sold               ( 8.8%)
       6.9%        15.8%             Gross profit                     (63.6%)
      11.4%         8.8%             Other operating revenue            6.1%
     114.2%       114.6%             Selling general and              (11.4%)
                                      administrative
      19.1%         9.8%               Research and development        60.1% 
    (131.1%)      (99.9%)               Operating loss                 (8.4%) 
       6.9%         2.0%                Other income/(expense)        173.3%
    (124.2%)      (97.8%)               Net income (loss)              (4.8%)

</TABLE> 

               Additionally, as an  aid to understanding  trends and factors  of
the Registrant, the following ratios describe historical summaries of liquidity,
activity  and profitability  ratios for the  years ended September  30, 1995 and
1994.

<TABLE>

<CAPTION>

                                                1995      1994

               <S>                              <C>      <C>

               Liquidity
               Current ratio                    7.22     10.05  
               Current ratio less inventory     4.54      7.33  

               Activity
               Trade receivables turnover       2.81      3.16  
               Inventory turnover               1.15      1.47  

               Profitability
               Return on assets                (40.9%)  (32.4%)  
               Return on equity                (45.4%)  (35.3%)  
               Return on sales                (124.2%)  (97.8%)

</TABLE>  

               Revenue.   Revenue  decreased $251,600,  or 17.4% primarily  as a
result  of a  decrease in  sales of  the following  product groups:  catheters &
accessories of  $137,600, a decrease  in general accessories  of $15,800,  and a
decrease in cam  wrap and lap wrap sales of $88,600.  The continuing decrease in
domestic,  non OEM  sales is  primarily the  result of  the decrease  in capital
budget  expenditures   in  hospitals   and  increased  competition   from  other
manufacturers  of  surgical  cameras.    The  Registrant  believes  the  capital
equipment market  will rebound somewhat in fiscal 1996 due to both the expansion
of the office  endoscopy market and  the hospitals needing  to replace  outdated
endoscopy  equipment, but  the  Registrant is  also  taking steps  to  introduce
products in the fiscal 1996 time frame  that address the combined issues of cost
and  sterility  that  plague the  capital  tight  hospital  market, although  no
assurances of the success of that strategy can be given.  

               OEM sales decreased  during fiscal 1995 to $132,900 from $160,400
during  fiscal  year end  1994.    This decrease  is  due  primarily to  reduced
shipments  to  Endosurgical  Development  Company  (EDC).    The  Registrant  is
attempting to replace the OEM revenue base lost during fiscal  1992 by expanding
existing business  with current OEM  customers such as  Endosurgical Development
Corporation (EDC), and cultivating  new relationships that are in  the beginning
stages  of sales such as Origin Medsystems,  Inc., a subsidiary of the Eli Lilly
Company.   As of  the Registrants  fiscal 1995 year  end, backorders  from these
companies  totaled  approximately  $63,400  consisting  of  orders  from  Origin
Medsystems for Adair Veress needles.  In the upcoming fiscal year the Registrant
expects to expand revenues from all of these OEM customers as well as attempt to
add others  in  the areas  of general  laparoscopy, arthroscopy,  cardiovascular
surgery,  dental endoscopy,  as  well  as add  a  national distributor  for  the
Registrant's Lap-WrapTM and Coupler DrapeTM products, although no assurances can
be given as to the success of these efforts.  

               Foreign  market sales  revenues decreased  by $139,800,  or 23.4%
over  fiscal 1994.  The Registrant added two additional distributors in Pakistan
and the Middle East and expects expansion of the foreign distribution network in
fiscal 1996  along with an  increase in revenues  from this source,  although no
assurances can be given as to the success of those efforts.

               Cost of  Goods Sold.   Cost  of Goods Sold  for the  fiscal years
ended 1995  and 1994 were $1,112,400 and $1,219,200 respectively, for a decrease
of $106,800 or 8.8%.   Cost of goods sold  as a percent of revenue  increased to
93.1% for fiscal 1994  from 84.2% in Fiscal 1994.  The  principal reason for the
decrease in  overall  cost of  goods  sold is  lower  sales volumes,  while  the
increase in  cost of sales  as a  percentage of gross  revenue is  attributed to
lower production volumes and  charging excess manufacturing capacity to  cost of
goods sold.  Varying sales mixes  are an additional factor in the cost  of sales
percent increase.   Underabsorbed overhead variances will  continue to adversely
affect cost of goods sold as  a percentage of revenues during fiscal  1996 until
such time that increases in sales and production volumes materialize.

               Selling,  General  &  Administrative  Expenses  (S,G&A).    S,G&A
expenses  for  the  fiscal  years  ended  1995  and  1994  were  $1,364,400  and
$1,539,200, respectively, for a decrease of $174,800 or 11.4%.   The decrease is
primarily  due to  the  effectiveness of  cost  cutting measures  instituted  by
management during fiscal years 1995 and 1994 and precipitated by lower sales and
production volumes.  The Registrant continues to reduce or eliminate expenses in
all areas  when practical  including executive compensation,  employee benefits,
and travel  & promotions.   Subsequent to  year end the  Registrant amended  its
license agreement  with its Chairman whereby  he will forgo  $120,000 in royalty
payments for fiscal  1996 in exchange for options to  purchase 120,000 shares of
the Registrants common stock at $1.00  per share.  No such waiver  exists beyond
fiscal 1996. 

                 Research and Development Costs.  Research and Development costs
for  the  fiscal   years  ended  1995  and  1994  were  $228,100  and  $142,500,
respectively, for  an increase of $85,600  or 60.1%.  The  increase is primarily
attributable to projects related to  electrical compatibility conversions in the
European market and the USESTM system.  The USES system was transferred to Micro
Medical Devices  under the  new distribution agreement.  See item  12 -  Certain
Relationships  and   Related  Transactions,   "Distribution  Agreement."     The
Registrant   will  continue  to  fund  Research  and  Development  as  it  deems
appropriate to maintain or gain a competitive advantage. 
 
Effect of Changing Prices and Inflation

               Generally, inflation  has not  been a  significant factor  on the
Registrant's operations.

Item 7.        Financial Statements.

               The  following financial statements are  filed as a  part of this
Form 10-KSB and are included immediately following the signature page. 

              Report of Independent Certified Public Accountants

              Balance Sheet - September 30, 1995 and 1994

              Statements  of Operations  - Years  ended  September 30,  1995 and
              1994

              Statements of Stockholders' Equity - Years ended
              September 30, 1995 and 1994

              Statements of Cash Flows - Years ended September 30,
              1995 and 1994

              Notes to Financial Statements

Item 8.       Changes in  and Disagreements  With Accountants on  Accounting and
              Financial Disclosure.

              The Company  has not changed its  principal independent accountant
during the two most recent fiscal years.  Thus, this item is not applicable.

<PAGE>

                                    PART III


Item 9.       Directors, Executive  Officers, Promoters  and Control Persons  of
              the Company; Compliance With Section 16(a) of the Exchange Act.

              (a)  Identification of Directors and Executive Officers.

              The following  table sets forth certain  information regarding the
directors and executive officers of the Registrant:

Name                                 Age    Position

Edwin L. Adair, M.D. (1)             65     Chairman of the Board and Treasurer

Van A. Horsley                       43     Director, President, Chief Financial
                                            Officer and Chief Executive Officer

Pat Horsley Adair (1)                67     Director and Secretary

I. Dean Bayne, M.D.                  68     Director and Assistant Secretary

Leroy Bilanich                       45     Director

Jo Brehm                             59     Vice President - Sales and
                                            Administration


(1)            Members of the Compensation Committee.

               No arrangement  exists  between any  of  the above  officers  and
directors pursuant to which any one of those persons was elected to such  office
or position.

     Directors hold  office until the next  meeting of shareholders and  until a
successor  is  elected and  qualified, or  until  their resignation.   Executive
officers are elected  at annual meetings of the  Board of Directors.   Each such
officer holds office for one year or until a successor has been duly elected and
qualified or until death, resignation or removal.

     Edwin L. Adair, M.D.  has been a director of the  Registrant since June 30,
1971, Chairman  of the Board since  September 8, 1981 and  Treasurer since March
27, 1973.  From February 6, 1986 until  July 13, 1990, Dr. Adair also served  as
Chief Executive Officer  of the Registrant.   Dr. Adair  received B.S. and  M.D.
degrees from  the University  of Colorado  in 1951 and  1955, respectively.   He
practiced medicine from  1956 until 1983 and is a  board-certified urologist who
discontinued the practice  of medicine  due to a  physical disability  resulting
from an  accident.  Dr. Adair has published articles in medical journals and has
taught at the  University of Colorado School of Medicine.  Dr. Adair is a member
of the American  Medical Association,  American Board of  Urology, the  American
Urological Society and the American College of Surgeons.  The Registrant carried
$1,100,000 of key man  insurance on the life of Dr. Adair through the end of the
current  fiscal year, however, subsequent to the  end of fiscal 1995 this amount
was reduced to $100,000 as a cost cutting measure.

      Van A. Horsley has been a director, President and Chief Executive Officer
of the Registrant since July 13, 1990.  From March 1, 1990 until July  13, 1990,
Mr.  Horsley served as  Chief Financial Officer.   Mr. Horsley  holds a B.S.B.A.
degree in finance from the  University of Denver and a graduate degree  from the
School of  Banking at  the University of  Colorado.  From  1974 to  February 28,
1990,  Mr. Horsley  was  employed in  various  capacities by  Affiliated  Denver
National Bank in Denver, Colorado and from 1985 through February 28, 1990 served
as executive vice president - head of lending.  

     Pat Horsley Adair has been a director and Secretary of the Registrant since
September  8, 1981.   Mrs. Adair  attended McMurray  College in  Abilene, Texas,
taking courses in English  and business which  did not lead to  a degree.   From
June 1974 to  July 1983,  Mrs. Adair was  employed by the  Registrant as  office
manager.  Since  that time, Mrs. Adair has served as  Corporate Secretary to the
Registrant.   From 1964 to 1975, Mrs. Adair  served as executive director of the
Arapahoe County  Medical Society and from  1976 to 1980 she  served as executive
director of the Metro Denver Foundation for Medical Care,  an organization which
serves Arapahoe, Denver, Boulder, Jefferson and Adams counties, Colorado.

     I.  Dean Bayne, M.D. has been a  director of the Registrant since July 1987
and Assistant  Secretary since October 1988.   Dr. Bayne received  B.S. and M.D.
degrees from Louisiana State University in 1949 and  1953, respectively, and has
been  engaged in  private medical practice  since 1958.   He  attended Louisiana
State  University.   Dr. Bayne  was a  resident in  obstetrics at  Herman Kiefer
Hospital, Detroit, Michigan, and  a resident in gynecology at  Detroit Receiving
Hospital, Detroit, Michigan.   He  is a member  of the Board  of Obstetrics  and
Gynecology and the American College of Obstetrics and Gynecology.

     Leroy Bilanich, Ed.D. has been a director of the Registrant since September
13,  1990.    Dr.  Bilanich  has a  B.S.  in  journalism  and  broadcasting from
Pennsylvania State University, an  M.A. in communication from the  University of
Colorado  and has an Ed.D.  in organizational behavior  from Harvard University.
Dr. Bilanich currently works as  a consultant to large corporations in  the area
of organizational development and in the past has held various  positions in the
Human  Resource Departments at Pfizer,  Inc. from 1983 to March  of 1988 and the
Olin Corporation.

     Jo Brehm is  Vice President - Sales  and Administration of the  Registrant.
She  has been an employee of  the Registrant since 1973.   From December 1984 to
September 1988, Mrs.  Brehm served as  Vice President of  the Registrant.   From
September  1988  until  July  1990,  Mrs.  Brehm  served  as  President  of  the
Registrant.  In each position, Mrs. Brehm has performed various duties including
management of customer service  and order processing, as well  as administration
of  the Registrant's  office affairs,  personnel relations and  medical standard
compliance  activities.    She also  handles  all  OEM  and foreign  distributor
relationships.   In her present  position, Mrs. Brehm  continues to direct these
activities as  well as supervising  the Registrant's general  and administrative
activities.

     No director  of  the  Company  is a  director  of  another  company  having
securities registered under Section 12 of the Securities Exchange Act of 1934 or
a company registered under the Investment Company Act of 1940.

     (b)  Identification of Certain Significant Employees. 

     There are no significant employees who are not also directors  or executive
officers, described above.

     (c)  Family relationships.

     Dr.  Edwin L. Adair and  Pat Horsley Adair are married.   Van A. Horsley is
the son of Pat Horsley Adair.  There are no other family relationships among the
officers or directors.

      (d)  Involvement in Certain Legal Proceedings.

     During the past five years, no director or officer of the Company has:

                    (1)  Filed or has had filed against him a petition under the
federal bankruptcy  laws or any state insolvency law, nor has a receiver, fiscal
agent or similar officer  been appointed by a court for the business or property
of such  person, or any  partnership in which he  was a general  partner, or any
corporation or business association of  which he was an executive officer  at or
within two years before such filings;

                    (2)  Been convicted in  a criminal proceeding or is  a named
subject of a pending criminal proceeding (excluding traffic violations and other
minor offenses);

                    (3)  Been the subject of any order, judgment, or decree, not
subsequently  reversed,   suspended  or  vacated,  of  any  court  of  competent
jurisdiction,  permanently  or  temporarily   enjoining  such  person  from,  or
otherwise  limiting his  involvement  in any  type  of business,  securities  or
banking activities.

                    (4)  Been found by  a court of  competent jurisdiction in  a
civil  action, the Securities and  Exchange Commission or  the Commodity Futures
Trading  Commission  to  have  violated  any  federal  or  state  securities  or
commodities law, which judgment has not been reversed, suspended, or vacated.

Compliance with Section 16(a) of the Exchange Act

               Section  16(a)  of  the  Securities  Exchange  Act  of  1934 (the
"Exchange  Act") requires the Company's  directors and officers  and persons who
own more than ten percent of the Company's equity securities, to file reports of
ownership and changes in  ownership with the Securities and  Exchange Commission
(the  "SEC").  Directors, officers and greater than ten-percent shareholders are
required by SEC  regulation to furnish  the Company with  copies of all  Section
16(a) reports filed.

               Based  solely on  its  review of  the  copies of  the  reports it
received from persons  required to file,  the Company  believes that during  the
period  from October 1, 1994 through  September 30, 1995 all filing requirements
applicable to its  officers, directors and greater than ten-percent shareholders
were complied with except as follows:

Van  Horsley, president  of the Registrant,  filed a  form 4  reporting an event
which occurred in June 1995 late.  This report was filed in August 1995.

Jo Brehm, vice president  of the Registrant, filed  a form 4 reporting an  event
which occurred in June 1995 late.  This report was filed in August 1995.

Dr. & Mrs. Edwin Adair, chairman and secretary of the Registrant, filed a form 4
reporting an event which occurred in June  1995 late.  This report was filed  in
August 1995.

I. Dean  Bayne, director of  the Registrant, filed  a form 4  reporting an event
which occurred in June 1995 late.  This report was filed in August 1995.

Leroy J. Bilanich, director of the Registrant, filed a form 4 reporting an event
which occurred in June 1995 late.  This report was filed in August 1995.

Item 10.  Executive Compensation.

(a)  Summary Compensation Table

               The following table sets forth information regarding compensation
paid to the chief executive officer of the Registrant for the four years  ending
September  30, 1995.  No  other person who is  currently an executive officer of
the  Registrant earned salary  and bonus compensation  exceeding $100,000 during
any of those years.

<TABLE>

<CAPTION>

                              Annual Compensation ($$)     Long Term Compensation
                              -----------------------      ----------------------       
                                                           Awards             Payouts
                                                           ------             -------
   (a)              (b)       (c)       (d)       (e)       (f)         (g)     (h)      (i)
                                                          Restricted
Name and                                                    Stock     Options   LTIP     Other
Position            Year      Salary    Bonus     Other     Awards    & SARs   Payouts Compensation
--------            ----      ------    -----     -----   ----------  -------- ------- ------------
                    ($$)       ($$)      ($$)      ($$)      (##)       ($$)         ($$)

<S>                 <C>       <C>       <C>       <C>       <C>       <C>       <C>       <C>
Van A. Horsley      1995      105,000   -0-       925       -0-       40,900    -0-       559
President and       1994      105,000   -0-       925       -0-       50,000    -0-       559
Chief Executive     1993      105,400   -0-       925       -0-       42,606    -0-       559
Officer             1992      107,700   -0-       -0-       -0-        3,958    -0-       374

</TABLE>

             401(k)  Plan.   On  January  1,  1990,  the  Registrant  adopted an
employee benefit  plan under Internal Revenue  Code Section 401(k).   The 401(k)
plan is a profit sharing plan under  which both employees and the Registrant are
entitled  (at their own discretion) to  contribute a portion of compensation and
earnings, respectively,  to investment  funds to supplement  employee retirement
benefits.  At September 30, 1995, the Registrant's matching contributions to the
plan for  the accounts of Van  Horsley and Jo Brehm  totalled approximately $427
and  the matching contribution under the plan  for the accounts of all executive
officers  as a group totalled $462.  These amounts are included in column (i) of
the Summary Compensation Table.

             (b)  Stock Option Plans.

             Options and Option Plans.  Until April 10, 1988 the Registrant had
two plans  pursuant to which stock options could be granted to its directors and
officers.   These plans  were the 1981  Non-Qualified Consultants' Plan  and the
1981 Incentive  Stock Option  Plan (the "Old  Plans").   On April 10,  1988, the
Board of Directors canceled the Old Plans to the extent that shares reserved for
issuance thereunder were  not then under option, and adopted  and authorized the
1988  Stock Option Plan  (the "1988 Plan") and  directed that management prepare
the documents formally defining the plan.  At that time the Board also 
authorized  the issuance  of certain  options under  the 1988  Plan.   The Board
formally approved the  1988 Plan on July 14, 1988  and the shareholders approved
the 1988 Plan on September 28, 1988.

             Allocations of options under the Registrant's stock option plans
are made  by the Compensation  Committee based on the  duties, contributions and
value  of  the services  of  the respective  optionee.   The  Committee  has the
authority to  determine to  whom  options were  granted,  the number  of  shares
covered  by each option,  when each  option was to  be granted,  date of initial
ability to  exercise, exercise price and  certain other terms and  to prescribe,
interpret, amend and  rescind rules and regulations relating to  each plan.  Any
options canceled or not exercised within the option period became  available for
grants of new options under  the plans.  The Board also has the  power to select
committees consisting of not less than two members to administer each plan.  The
1988 Plan contains  the same provisions for administration as  were contained in
the Old Plans.

             Under the 1988 Plan, the Registrant reserved an aggregate of
1,000,000  shares of  its  common stock  for  issuance to  employees  (including
officers),  consultants and directors of the Registrant  or any subsidiary.  The
plan contains  restrictions on  the number  of options  granted to  officers and
directors, exercise price, maximum term  and transferability.  On May 14,  1991,
the Registrant  filed a registration statement under  the Securities Act of 1933
on Form  S-8 which  registered the  shares  of common  stock underlying  options
granted  under  the  1988  Plan.    As  such,  shares  issued  upon exercise  of
outstanding options can be traded on the open market with limited restriction.
 
             All of the options granted under the Old Plans and the 1988 Plan
may  be exercised  through payment  of  the exercise  price with  shares of  the
Registrant's  Common Stock or  cash, or both.   The ability  to exercise options
through  surrendering shares  of  Common Stock  enables  holders of  options  to
exercise the entire  amount of an option by  first exercising a small  number of
options,  followed by successively larger option exercises which the optionee is
able to effect by surrendering the increasing number of shares obtained thereby.
For  little  or  no initial  cash  payment,  repeated  exercises of  options  by
surrendering stock having a market price in excess of the option exercise price,
enable  an optionee  to provide  sufficient consideration  to the  Registrant to
exercise  his  entire stock  option.   The exercise  of options  might otherwise
require substantial cash consideration.  This procedure is often  referred to as
pyramiding.

     The following table sets forth certain information regarding stock
options granted by the Registrant to  the Chief Executive Officer  and no other
executive officers received  total annual salary and bonus in excess of $100,000
during 1995.  No stock appreciation rights were granted.

<TABLE>

<CAPTION>

Option Grants in Fiscal 199

(a)                 (b)             (c)           (d)           (e)
                                % of Total
                               Options Granted  Exercise or
                  Options       Employees in    Base Price    Expiration
Name              Granted (#)    Fiscal Year     ($/sh)          Date  

<S>               <C>             <C>            <C>        <C>
Van A. Horsley    40,900           18.9%         $1.50      June 1, 2000        
 
                             
</TABLE>

Aggregated Option  Exercises in  Last Fiscal  Year  and Fiscal  Year End  Option
Values. 

             The Following table sets forth information regarding stock options
exercised by the chief executive officer and certain other officers or directors
during the 1995  fiscal year as well as the year-end value of options being held
by such persons on September  30, 1995:  No Stock Appreciation Rights  have been
granted, or are held by, any such person:

<TABLE>

<CAPTION>
(a)                 (b)       (c)          (d)           (e)
                                       Number of      Value of 
                                       Unexercised   In-the-Money
                  Shares               Options at     Options at
                 Acquired                FY End         FY End
                    on       Value    (Exercisable/ (Exercisable/
Name             Exercise   Realized Unexercisable) Unexercisable)

<S>                <C>        <C>     <C>            <C>
Van A. Horsley     -0-        $0      174,638 / 0    $6,000 / 0

</TABLE>

            (c)  The Registrant has no long term incentive compensation plans.
        
            (d)   Other Compensation

            There are no plans to pay bonuses or deferred compensation to 
employees of the Company.

            The Company has adopted a medical insurance plan for its
employees and provides life, disability, and other insurance plans for  the
benefit  of its employees.

          (e)   Compensation of Directors

                     General.    The  Registrant's directors  are  authorized to
receive $200  for  each directors'  meeting  attended by  them.   To  date,  the
directors have waived their right to receive directors fees.  In September 1990,
certain directors  were granted options under  the 1988 Stock Option  Plan.  Dr.
Bayne owns an incentive stock option to acquire 20,000 shares of common stock at
$4.00 per share, expiring June 11, 2003.  Leroy Bilanich owns an incentive stock
option to  acquire 20,000 shares  of common stock  at $1.50 per  share, expiring
June 11,  2003.  The following options were granted  during fiscal 1995 to board
members:  Dr. Bayne  was granted an  option to  acquire 20,000  shares of common
stock at $1.50  per share, expiring June 1, 2000 on  June 2, 1995.  Mr. Bilanich
was  granted an option  to acquire  20,000 shares of  common stock  at $1.50 per
share, expiring June 1,  2000 on June 2, 1995.   Dr. Edwin Adair was  granted an
option to  acquire 44,000 shares  of common stock  at $1.50 per  share, expiring
June 1,  2000 on  June 2,  1995.   Pat Horsley  Adair was granted  an option  to
acquire 23,600 shares of common stock at $1.50  per share, expiring June 1, 2000
on June 2, 1995.

                     Royalty  Agreements.  Dr. Adair and Dr. Bayne, directors of
the Registrant, are  each entitled to receive royalties equal  to two percent of
the net sales of  products each assigned to the Company.  No royalties have been
accrued or paid  to Dr. Bayne, however, $510,000  has been paid and  $90,000 has
been accrued to Dr. Adair.  The Registrant is  required to pay Dr. Adair minimum
annual  royalties of $120,000.   Subsequent  to the  end of  fiscal 1995,  in an
effort to help reduce negative cash flow during fiscal 1996, on December 1, 1995
Dr. Adair signed an agreement with  the Registrant where he has accepted 120,000
common stock options priced at $1.00 per share in substitution for his customary
cash royalty  payment  for  the 1996  fiscal  year.   See  Item 13  for  further
information regarding  the royalty agreement, Certain  Relationships and Related
Transactions.   

                     Indemnification  Agreements.   The  Registrant has  entered
into  indemnification  agreements  with  each  of  its  directors  and  officers
providing for indemnification  of each  such director by  the Registrant to  the
full extent permitted by the Colorado  Corporation Code.  The agreements provide
that  in  all  circumstances  in  which  a  director   or  officer  may  receive
indemnification by statute, such indemnity shall be provided.

                     Officer's Life Insurance  and Split-Dollar  Agreement.   In
August 1990, the Registrant purchased a $1,000,000 convertible term key-man life
insurance policy on its Chairman.  Additionally,  in August 1990, the Registrant
entered into a split-dollar  life insurance agreement with an  irrevocable trust
established by the Chairman and Secretary of the Registrant.  The Registrant had
agreed to pay substantially all of  the annual premiums on the $2,000,000 whole-
life, second-to-die policy  which had  the insurance trust  as the  beneficiary.
The  split-dollar  agreement specified  that  the Registrant  would  receive the
greater of  premiums  paid or  cash surrender  value upon  the second  insured's
death.  However,  should the Registrant decide not  to pay the premium  prior to
the second insured's death,  the Registrant would only collect  premiums paid to
the extent of the cash  surrender value.  As  such, the Registrant had  recorded
the premiums paid in the accompanying  consolidated balance sheets to the extent
of cash surrender  value.  Subsequent to  the end of fiscal  1995 the Registrant
terminated both  the above policies  as a cost-cutting measure.   The Registrant
does  however, currently maintain a $100,000 whole life key-man insurance policy
on its Chairman which was acquired in 1985.

                     The Registrant has no other arrangements  pursuant to which
it compensates its directors for acting in their capacities as such.

     (g)  The Registrant has no employment contracts with any executive officer.
The Registrant has no compensatory arrangement which may result from a
change-of-control of the Registrant or a change in any executive officers
responsibilities.

     (h)  No options were repriced during the fiscal year.

Item 11.       Security Ownership of Certain Beneficial Owners and Management.

               (a) and (b)   Security ownership of certain beneficial owners and
management.

               At  September 30,  1995,  the Registrant  had only  one  class of
outstanding voting securities,  its Common Stock, $.001 par value. The following
table sets  forth information  as  of September  30, 1995  with  respect to  the
ownership of  the Company's Common  Stock for  all directors, individually,  all
officers and directors as a  group, and all beneficial owners of more  than five
percent of  the Common Stock.   The following shareholders have  sole voting and
investment  power with  respect to  the  shares, unless  it  has been  indicated
otherwise.

<TABLE>

<CAPTION>

                                             Shares owned        Percent
Name of beneficial owner                   beneficially (1)     of class

<S>                                          <C>                 <C>
Edwin L. Adair, M.D.                         1,246,898 (2)        18.1%
and Pat Horsley Adair
317 Paragon Way
Castle Pines Village
Colorado   80104

I. Dean Bayne, M.D.                              40,000           0.6%

Van Horsley                                     253,858 (3)       3.7%

Leroy Bilanich, Ed.D.                            40,000           0.6%

All officers and                               1,655,556 (4)      24.1%
directors as a
group (6 persons)

</TABLE>

(1)       As used in this section, the term beneficial ownership with respect to
          a security is defined by Rule 13d-3 under the Securities  Exchange Act
          of  1934 as consisting of  sole or shared  voting power (including the
          power to  vote or  direct the vote)  and/or sole or  shared investment
          power (including the  power to dispose or direct the disposition) with
          respect   to  the   security   through   any  contract,   arrangement,
          understanding, relationship or otherwise.  Unless otherwise indicated,
          beneficial  ownership is  of record  and consists  of sole  voting and
          investment power.

(2)       Includes 367,600 stock options issued to the Chairman of which all are
          presently exercisable.  Does not include 120,000 options issued to Dr.
          Adair in  December, 1995 in  consideration for cancellation  of fiscal
          1996 royalty payments due him totaling $120,000.  

(3)       Includes 174,638 shares under presently exercisable stock options.

(4)       Includes  shares  referenced  in  notes (2)  through  (3)  and  74,800
          additional  shares and  options  held by  one  officer  who is  not  a
          director, all of which are presently exercisable.

     (c)  Changes in Control. 

     The  Company knows  of no  arrangement, the  operation of  which may,  at a
subsequent date, result in change in control of the Company.

Item 12.        Certain Relationships and Related Transactions.

     (a) and (b)  Transactions With Management and Others.  

     The  Registrant has  engaged in  certain transactions  with members  of its
Board of Directors.  In each  case, the Board believed that the transaction  was
in the  Registrant's best interests  and the  terms of the  transaction were  at
least  as fair  to Registrant as  could have  been obtained  from an independent
person,  and  the  transaction  was approved  by  the  disinterested  directors.
Registrant will continue  to follow this procedure in approving any transactions
with affiliated persons.  No such transactions are contemplated at this time.

     License  Agreement  with Dr.  Adair.   The  Registrant has  entered  into a
license agreement,  as further amended  and explained  below, effective June  3,
1987, with its  Chairman relating to the use of  certain technology invented and
developed by  him.  Originally,  the agreement  licensed technology relating  to
certain  malleable endoscopes,  flexible optical  catheters,  the Adair/VeressTM
needle  and complementing viewing systems for  use in connection with detection,
diagnosis and  treatment  of disease  or  injury in  humans  and animals.    The
Registrant  used this  technology  to develop  the Model  5990  Optical Catheter
System.

     Pursuant to an amendment, dated February 20, 1989, to the license agreement
described  in the  preceding paragraph,  the Registrant  acquired the  rights to
certain technology including  patent applications for technology related  to the
Registrant's (a) speculum camera which uses a small, video camera  attached to a
speculum  for magnified  viewing of  the cervix  as a  diagnostic tool;  and (b)
camera  with a sterilizable sheath (disposable),  a molded or machined container
used  to hold the camera in place,  and which utilizes a standard, off-the-shelf
camera which is covered by a specialized sheath  which provides proper alignment
with  endoscopes, sterility of  the system and  reduced cost to  the hospital or
other end-user.

     Pursuant to  an amendment  dated June  22, 1989,  to the  license agreement
described above, the Chairman agreed not to exercise his right of termination of
the license  if the Registrant used  its best efforts to  manufacture and market
all products developed utilizing the technology included within the license.  In
exchange  for the  agreement  not  to exercise  his  right of  termination,  the
Registrant  agreed to  pay  the Chairman  minimum annual  royalties  of $60,000,
$80,000 and  $100,000 for the  years ended  September 30, 1990,  1991 and  1992,
respectively.  Thereafter, the Registrant has agreed to pay the Chairman minimum
annual  royalties of  $120,000.    The  license agreement  does  not  specify  a
termination date.   Through  September 30,  1995,  the Registrant  has paid  the
Chairman $510,000 as specified under the agreement.

     Pursuant to an amendment dated July 2, 1992, to the license agreement noted
above,  the  Chairman  agreed to  add  further developed  technology  along with
patents and trademarks  to the license  agreement at no  additional cost to  the
Registrant.    This  amendment added  23  technologies that  had  either patents
pending or fully- issued patent coverage.

     Pursuant to Amendment No. 4 dated October 8, 1992, to the license agreement
noted  above, the Chairman and Registrant  agreed to continue the aforementioned
royalty payments indefinitely and  issue to the Chairman options  to purchase an
additional 300,000 shares of the Registrant's  common stock at $4.00 per  share.
In exchange for the issuance  of additional options and the continuation  of the
royalty payment stream,  the Chairman agreed to contribute certain patent rights
and technology  (including some as yet  to be issued patent  rights) relating to
rigid video endoscopes using advanced chip technology.  

     The  amendment includes  future  technology relating  to operative  channel
endoscopes, thoracic endoscopes, 3-D endoscopes and related disposable products.
Specifically  excluded  from the  license  agreement is  technology  relating to
flexible or steerable endoscopic devices.

     Other provisions included in this amendment include an option issued to the
Chairman allowing him to require the  Registrant to register the options granted
pursuant  to Amendment  No. 4.   The cost of  registration will be  borne by the
Registrant.  In addition, the Registrant agreed to sub-license technology to the
Chairman relating  to  the use  of  laser light  through  flexible or  steerable
endoscopes on a non-exclusive basis.

     The Registrant  further agreed that, if  within a three year  period of the
issuance of  any  patent included  in  the license  agreement, as  amended,  the
Registrant fails to  commercialize such technology,  the Chairman, upon  written
request,  may  terminate  the   license  agreement  on  that  specific   patent.
Furthermore, the Chairman  has the right to  terminate the license  agreement on
specific  technologies upon acquisition by another person  of 20% or more of the
outstanding  stock of  the  Registrant unless  the acquiror  provides  notice in
writing,  within 30 days, of its  intention to commercially exploit the specific
technologies.

     The Chairman is free to research and develop future technology and know-how
at his own expense.  Such as yet  unnamed future technology is not a part of the
aforementioned  license agreement and the Registrant  has no ownership rights to
such  technology.  However,  the Chairman has  agreed to offer  the Registrant a
first  right  of  refusal on  such  future  technology  prior to  offering  such
technology to an  unrelated third party.   The first right  of refusal shall  be
made in  writing to the  Registrant and  remain open  for a period  of 60  days.
During the  development  of  this  technology, the  Registrant  will  allow  the
Chairman  access to facilities, equipment and  inventory of the Registrant at no
cost provided the activities do  not interfere with the ongoing business  of the
Registrant or result in an unreasonable expense to the Registrant.

     Should the Registrant  accept the technology and  know-how, such technology
shall  automatically  be included  within the  license agreement,  including all
amendments.  Furthermore, the Registrant shall be responsible to pay  all future
patent and  development  costs  associated with  the  new technology.    If  the
Registrant  rejects the  new technology,  the Chairman  is free to  pursue third
party alliances and has no further obligation to re-offer such technology to the
Registrant.    However,  the Chairman  may  not use  the  facilities, equipment,
inventory or other resources of the Registrant for any  such further development
of said technology.

     The  Registrant is free to terminate the  license agreement, as amended, at
any time and  without penalty.  The  Chairman must give  the Registrant 45  days
prior written notice of his intent to terminate the license  upon default by the
Registrant of its  obligations under the license  agreement.  Additionally,  the
license  will terminate automatically immediately if  (i) the Registrant files a
voluntary case in bankruptcy or (ii) any order for relief against the Registrant
shall be  entered in an involuntary  case in bankruptcy or  (iii) the Registrant
shall fail, or admit in writing an inability, to pay its debts as they mature.

     The technology added to the license agreement over the years has  increased
MEDY's patent maintenance  costs and management recently  performed a review  of
the viability of certain  of the technology based  upon MEDY's current  business
and  marketing plans.   Management  has determined  that MEDY  would not  likely
develop  certain  of  the technology  into  saleable  products  because  of  the
anticipated costs involved and the recent difficulties MEDY has had in obtaining
approval of new devices  from the federal Food and  Drug Administration ("FDA").
As a  result, management  recommended, and  the Board  approved,  the return  of
twelve items  of technology  to Dr.  Adair.   Medical had  approximately $73,000
invested in this technology, and the maintenance costs for this technology which
was not likely to be commercialized by MEDY in the near future were in excess of
$20,000 per year.  To conserve cash flow and  to allow management to concentrate
on  MEDY's other products,  the Board of  Directors approved the  return of this
technology to Dr. Adair.

     At the  same  time, the  Board  approved an  amended and  restated  license
agreement  with Dr. Adair which consolidated  the original license agreement and
the four amendments thereto, and added an expanded right of first refusal.   The
principal amendments are:

     The definition  of "Technology" included within  the license agreement
     was modified to  more accurately describe the technology  developed by
     Dr. Adair  which  is of  continuing  interest to  MEDY:   the  Optical
     CatheterTM technology  (including the fluorescence  detection system);
     the  Adair-Veress   needleTM,  the  technology  associated   with  the
     Electronic Video LaparoscopeTM, and  Lap-WrapTM.  The restated license
     agreement continues to specifically  exclude from its terms technology
     relating to flexible  or steerable endoscopic devices  (other than the
     Optical Catheter).  In the restated  license agreement, MEDY continues
     to agree to sub-license technology to the Chairman relating to the use
     of  laser light  through flexible  or steerable  endoscopes on  a non-
     exclusive basis.

     Under  the  restated  license  agreement, Dr.  Adair  is  specifically
     permitted  to research and develop new  technology and know-how at his
     own expense.   Such technology and know-how will not  be a part of the
     restated license  agreement unless MEDY  exercises its right  of first
     refusal to  acquire  the new  technology or  know-how.   Dr. Adair  is
     obligated to  offer all new technology which  he may develop to MEDY's
     Board  of  Directors under  the  license  agreement,  subject only  to
     reimbursement to him  of costs he has in the development and patenting
     of the  technology.  Neither Dr.  nor Mrs. Adair would  participate in
     the  Board's vote whether to accept  the proffered technology.  Should
     MEDY  accept  the  technology  and  know-how,  such  technology  shall
     automatically be included within  the license agreement, including all
     amendments.  Furthermore,  MEDY shall be responsible to pay all future
     patent  and development costs associated with  the new technology.  If
     MEDY rejects the new technology, the  Chairman is free to pursue third
     party  alliances  and  has  no  further  obligation  to re-offer  such
     technology to MEDY.

     The financial provisions  of the license agreement were not modified in any
material  respect.   The  restated license  agreement continues  to  provide for
minimum royalties  payable to  Dr.  Adair of  $120,000 per  year.   The  license
agreement does not specify a termination date.  Currently MEDY is accruing these
royalties for  future payment  to Dr. Adair,  without interest.   These  accrued
royalties are collateral  for a guarantee from Dr. Adair of  a loan made by MEDY
to  an affiliated company, Micro-Medical Devices,  Inc.  (See further discussion
under  "Distribution Agreement,"  below.)   As noted  above, Dr.  Adair accepted
120,000  of the  Registrants common stock  options in  lieu of  the cash royalty
payments due him for fiscal 1996.

     The restated license agreement continues to provide that, if within a three
year period of the issuance of any  patent included in the license agreement, as
amended, MEDY fails  to commercialize such technology,  Dr. Adair, upon  written
request,  may  terminate  the   license  agreement  on  that   specific  patent.
Furthermore,  Dr. Adair  has the  right  to terminate  the license  agreement on
specific technologies upon acquisition by  another person of 20% or more  of the
outstanding  stock of  the  Registrant unless  the acquirer  provides  notice in
writing, within 30  days, of its intention to commercially  exploit the specific
technologies.

     As  noted, the restated license agreement  contemplates that Dr. Adair will
continue to  develop new technology and know-how for his own account, subject to
the right of first refusal.  During the development of  any new technology, MEDY
will allow the  Chairman access to  facilities, equipment  and inventory of  the
Registrant at  no cost provided the activities do not interfere with the ongoing
business of  MEDY or result in unreasonable expense to  MEDY.  If, however, MEDY
rejects the  technology,  Dr. Adair  will  not be  entitled to  use  any of  the
equipment, facilities, or inventory of MEDY for further development.

     The termination  provisions were  not changed  materially  in the  restated
license agreement.  MEDY is free to terminate the license agreement, as amended,
at any time and without penalty.  Dr. Adair must give MEDY 45 days prior written
notice  of  his intent  to terminate  the license  upon default  by MEDY  of its
obligations under  the  license  agreement.    Additionally,  the  license  will
terminate  automatically  immediately  if (i)  MEDY  files a  voluntary  case in
bankruptcy or  (ii) any order  for relief  against MEDY shall  be entered in  an
involuntary case  in bankruptcy or (iii) MEDY shall fail, or admit in writing an
inability, to pay its debts as they mature.

Distribution Agreement.

     The  Registrant entered  into a  distribution agreement  with Micro-Medical
Devices,  Inc. ("MMD"), a corporation  wholly-owned by Dr.  Adair during June of
fiscal year 1995.  The distribution agreement includes all products developed by
Dr. Adair  related to his Universal  Sterile Endoscopy SystemTM ("USES").   MEDY
had previously  owned  certain  rights  to this  technology  under  the  License
Agreement  but was required to return the technology  to Dr. Adair due to MEDY's
inability to commercialize  the product within the  required three year  period.
MEDY was unable  to do so  because of its lack  of financial capability  and its
inability to  obtain approval of products  from the FDA.   Dr. Adair, therefore,
continued the research and development necessary to develop USES and the related
products at his own expense, and through MMD, obtain FDA approval thereof.

     MMD  has appointed MEDY as its exclusive worldwide distributor for the USES
products through June 30, 2000.  MMD  also granted MEDY a right of first refusal
to distribute any further products MMD may develop.

     Pricing of the products has not yet been established, but MEDY will be free
to  resell products  at  any price  it  may  determine.   There  are no  minimum
performance requirements under  the distribution agreement,  and MEDY need  only
purchase products it has already sold to third parties.

     As a condition of the distribution agreement, however,  MEDY agreed to loan
MMD up  to $120,000 pursuant  to a promissory note  signed by MMD.   The note is
collateralized by the amounts due Dr. Adair under the restated license agreement
as the sole shareholder of MMD,  and he has pledged all amounts due to him under
the  restated license  agreement  as collateral  for this  guarantee.   MEDY  is
accruing  these amounts  payable to  Dr. Adair  without interest.   MEDY  is not
obligated  to advance any amounts to MMD  except to the extent these amounts are
fully collateralized by amounts due to Dr. Adair.   The promissory note from MMD
to  MEDY bears interest at a  rate of 1% over the  current prime rate per annum.
Furthermore, the distribution  agreement provides that MEDY  may credit 100%  of
the purchase  price of any  products from  MMD under the  distribution agreement
against  amounts due under the  promissory note.   As of September  30, 1995 MMD
owed the Registrant $110,000 under the terms of the note, plus accrued interest.
See note 3 to the financial statements.

     MMD also agreed to sublease space  from MEDY for administration purposes at
cost.  The amount of space has not yet been defined,  but the rental payment and
reimbursement  to MEDY for employees MMD  may utilize are intended to compensate
MEDY for all associated expenses, including rent on a per-square-foot basis.

     In October 1987, I. Dean  Bayne, M.D., a director, assigned his  rights and
interest  in a then pending patent application  related to the Bayne Pap BrushTM
described  in  "Item  1  - Business  -Patents,  Trademarks  and  Licenses."   To
reimburse him for  his expenses in  developing that product and  as compensation
for  the assignment, the Registrant  paid Dr. Bayne  10,000 shares of restricted
common stock and will pay him a royalty for the duration  of the patent equal to
two percent of the  net sales of the Bayne  Pap BrushTM, less certain  expenses.
As of  September 30, 1995,  no royalties have  been accrued  or paid under  this
arrangement.  See "Item 1 - Business."

     The Registrant  employs two sons  of Dr. Adair and  one son of  Pat Horsley
Adair at annual  salary rates of approximately  $45,600, $45,600, and  $105,000.
During the  most  recently  completed  fiscal year  those  persons  received  no
compensation from the registrant in addition to their salaries.

     Except as otherwise stated above, since October 1, 1991, the Registrant has
not been a party to any transaction involving in excess of $60,000, in which any
director  or executive  officer, nominee  for election  as a  director, security
holder of record  or beneficially of more than five percent  of any class of the
Registrant's securities, or any member of the immediate family  of the foregoing
had or will have a direct or indirect material interest.

     The Registrant is not  aware of any other relationship between nominees for
election as  directors or its directors  and the Registrant that  are similar in
nature and scope to those relationships listed in this Item 12.

     (c)  Parents of the Company

     Not applicable, inasmuch as there are no "Parents" of the Registrant.

     (d)  Transactions with Promoters

     Not applicable,  inasmuch as the Company was organized more than five years
ago.

Item 13.        Exhibits and Reports on Form 8-K.  

     (a) Exhibits

          The following isa complete list ofexhibits filed as partof this Annual
Report on Form 10-KSB, which Exhibits are incorporated herein.

Exhibit
 Number                  Description

 3.1(k)                  Restated Articles of Incorporation 
                         (December 30, 1988)

 3.2(n)                  Bylaws, as amended

 10.1(m)                 Amendment Number Five to Lease
                         Agreement - Englewood Office Space

 10.2(a)                 Stock Option Plan - Consultant's

 10.3                    Omitted

 10.4(j)                 1988 Stock Option Plan

 10.5                    Omitted

 10.6(d)                 Sales Representative Agreement 
                         - Form

 10.7(e)                 International Distributor Agreement

 10.8(f)                 Indemnification Agreement - Edwin L. 
                         Adair, M.D.

 10.9(f)                 Indemnification Agreement - Pat 
                         Horsley Adair

 10.10(h)                Indemnification Agreement - I. Dean 
                         Bayne

 10.11(a)                Employee Confidentiality Agreement - 
                         Form

 10.12(b)                Section 125 Cafeteria Plan

 10.13(h)                Patent Assignment - Bayne Pap Brush

 10.14(o)                Amended  and  restated License
                         Agreement with Edwin L. Adair
                         effective as of June 1, 1995

 10.15                   Omitted

 10.19                   Omitted

 10.20                   Omitted

 10.21                   Omitted

 10.22                   Omitted

 10.23                   Omitted

 10.24                   Omitted 

 10.25(n)                401(k) Plan

 10.26(b)                Indemnification Agreement - Van A. 
                         Horsley

 10.27(b)                Indemnification Agreement - Leroy A. 
                         Bilanich

 22.1                    Subsidiaries   of    the   Registrant: MedPacific
                         Corporation, a Washington corporation

 24.1*                   Consent of McGladrey & Pullen, LLP

  *                      Filed herewith.

  (a)                    Incorporated by  reference from Registration  Statement
                         on Form S-1, SEC File No. 2-82856.

  (b)                    Incorporated  by reference  from the  Registrant's Form
                         10-K for the period ended September 30, 1991.

  (c)                    Omitted.

  (d)                    Incorporated  by reference  from the  Registrant's Form
                         10-K for the year ended September 30, 1984.

  (e)                    Incorporated  by reference  from the  Registrant's Form
                         8-K reporting an event of February 8, 1985.

  (f)                    Incorporated  by reference  from the  Registrant's Form
                         10-K for the year ended September 30, 1986.

  (g)                    Omitted.

  (h)                    Incorporated  by reference  from the  Registrant's Form
                         10-K for the fiscal year ended September 30, 1987.

  (i)                    Omitted.

  (j)                    Incorporated  by reference  from the  Registrant's Form
                         8-K reporting an event of October 12, 1988.

  (k)                    Incorporated  by reference  from the  Registrant's Form
                         10-Q for the quarter ended December 31, 1988.

  (l)                    Omitted.

  (m)          Incorporated by  reference from  Amendment No. 1  to Registration
               Statement on  Form S-1, Commission File No.  33-29497, filed with
               the Commission on July 26, 1989.

  (n)          Incorporated by reference from the Registrant's Form 10-K for the
               fiscal year ended September 30, 1990.

  (o)          Incorporated by  reference from the Registrant's  Form 10-QSB for
               the quarter ended June 30, 1995.

               (b)  Reports on Form 8-K

               During the last quarter of the  period covered by this Report the
Company filed no reports on Form 8-K. 


                                   SIGNATURES

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

                                             MEDICAL DYNAMICS, INC.


                                             By /s/ Van A. Horsley              
                                                 ------------------   
                                               Van A. Horsley,
                                               President

Date:  January 15, 1996


               In accordance  with the  requirements of the  Securities Exchange
Act of 1934,  this report  has been  signed below  by the  following persons  on
behalf of the Company and in the capacities and on the dates indicated. 


January 15, 1996                             /s/  Van A. Horsley
                                             -------------------
                                             Van A. Horsley, Principal Executive
                                             Officer,     Principal    Financial
                                             Officer, and Director


January 15, 1996                             /s/  Edwin L. Adair
                                             --------------------   
                                             Edwin L.  Adair, M.D., Chairman  of
                                             the Board and Director


January 15, 1996                            
                                                    
                                             I. Dean Bayne, M.D., Director


January 15, 1996                             /s/  Pat Horsley
                                             ----------------                   
                                             Pat Horsley Adair, Director

January 15, 1996                             
                                            
                                             Leroy Bilanich, Director

<PAGE>
                                   Contents


INDEPENDENT AUDITOR'S REPORT                           F-1
FINANCIAL STATEMENTS      
      
Consolidated balance sheets                            F2 - F3 

Consolidated statements of operations                  F-4 

Consolidated statements of stockholders' equity        F-5 
      
Consolidated statements of cash flows                  F6 - F7 
 
Notes to consolidated financial statements             F8 - F16 
 
      


      

       
<PAGE>     

      

                                  Independent Auditor's Report


Board of Directors and Shareholders
Medical Dynamics, Inc. and Subsidiary
Englewood, Colorado

We have audited the accompanying consolidated balance sheets of Medical
Dynamics, Inc. and its wholly-owned subsidiary, MedPacific Corporation (the
Company) as of September 30, 1995 and 1994, and the related consolidated
statements of operations, stockholders' equity and cash flows for the years
then ended.  These consolidated financial statements are the responsibility
of the Company's management.  Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Medical
Dynamics, Inc. and Subsidiary  as of September 30, 1995 and 1994, and the
results of its operations and its cash flows for the years then ended, in
conformity with generally accepted accounting principles.

The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern.  As discussed in
Note 6 to the financial statements, the Company has suffered recurring losses
and negative cash flows from operations.  This raises substantial doubt about
the Company's ability to continue as a going concern.  Management's plans in
regard to these matters are also described in Note 6.  The financial
statements do not include any adjustments that might result from the outcome
of this uncertainty.


                                      McGLADREY & PULLEN, LLP


Denver, Colorado
November 27, 1995, except for the fourth 
paragraph in Note 6, as to which the date is December 1, 1995

<PAGE>

<TABLE>

MEDICAL DYNAMICS, INC. AND SUBSIDIARY 
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1995 AND 1994
 
<CAPTION>
 
ASSETS                                           1995         1994 
<S>                                            <C>          <C>
Current assets 
Cash including cash equivalents
  1995 $1,029,900;  1994 $1,076,900            $1,071,700   $1,151,600 
Investments                                        10,000    1,010,500
Trade receivables, less allowance
  for doubtful accounts 
  1995 $45,000; 1994 $55,000                      391,600      457,800 
Note receivable - officer (Note 3)                110,000            - 
Inventories (Note 2)                              948,500      984,300 
Prepaid expenses                                   25,100       34,300
                                              -----------   ----------
     Total current assets                       2,556,900    3,638,500 
                                              -----------   ----------
Equipment
  Loaner equipment                                678,100      704,800 
  Machinery and equipment                         343,100      325,300 
  Furniture and fixtures                          270,200      266,000 
  Leasehold improvements                           54,500       54,500 
                                              -----------   ----------
                                                1,345,900    1,350,600
  Less accumulated depreciation
   and amortization                            (1,202,000)  (1,063,300) 
                                              -----------   ----------
                                                  143,900      287,300 
                                              -----------   ----------
Other assets 
 Patents, patents pending, and
   trademarks, net of accumulated 
   amortization 1995 $609,400;
   1994 $559,700                                  155,500      299,000 
 
Other (Note 8)                                     29,400      142,700 
                                              -----------   ----------
                                                  184,900      441,700 
                                              -----------   ----------
                                               $2,885,700   $4,367,500
                                              ===========   ==========

See Notes to Consolidated Financial Statements.

<PAGE>

<CAPTION>                 

LIABILITIES AND STOCKHOLDERS' EQUITY 

                                                  1995          1994 
<S>                                              <C>         <C>
Current liabilities 
  Accounts payable                               $188,400    $ 161,900 
  Accrued expenses                                 50,900       60,200 
  Product warranty costs                           25,000       50,000 
  Accrued royalties (Notes 3 and 6)                90,000       90,000 
                                              -----------    ---------
     Total current liabilities                    354,300      362,100 
                                              -----------    ---------      

Commitments and contingencies
  (Notes 3, 4, 6, 8, and 9)
 
Stockholders' equity (Notes 4 and 6) 
  Preferred stock, $.001 par value;
   authorized 5,000,000 shares; 
     none issued                                       -            -
  Common stock, $.001 par value;
   authorized 15,000,000 shares; 
     issued 1995 6,895,400 shares;
     1994 6,885,400 shares                          6,900        6,900
  Additional paid-in capital                   16,585,500   16,575,500 
  Accumulated deficit                         (13,981,700) (12,497,700) 
                                              -----------   ----------
                                                2,610,700    4,084,700 
      
Treasury stock at cost, 15,900 shares
  1995 and 1994                                   (79,300)     (79,300) 
                                              -----------    ---------
                                                2,531,400    4,005,400 
                                              -----------    ---------

                                               $2,885,700   $4,367,500 
                                              ===========    =========


</TABLE>

<PAGE>

<TABLE>
      
MEDICAL DYNAMICS, INC. AND SUBSIDIARY 
CONSOLIDATED STATEMENTS OF OPERATIONS 
YEARS ENDED SEPTEMBER 30, 1995 AND 1994 

<CAPTION>
 
                                             1995                1994
<S>                                        <C>              <C> 
Net sales (Notes 7 and 10)                 $ 1,195,200      $ 1,446,800 
Cost of goods sold                           1,112,400        1,219,200 
                                           -----------      ----------- 
Gross profit                                    82,800          227,600 
                                           -----------      -----------     
Other operating revenue                        135,900          128,100 
                                           -----------      ----------- 
Operating expenses: 
  Selling, general and
    administrative                           1,364,400        1,539,200 
  Research and development                     228,100          142,500 
  Royalty (Note 6)                             120,000          120,000 
  Loss from patents transferred
   to related party (Notes 3 and 6)             73,000            -
                                           -----------      -----------
                                             1,785,500        1,801,700 
                                           -----------      -----------
     Operating loss                         (1,566,800)      (1,446,000) 
                                           -----------      -----------
Financial income (expense): 
     Interest income                            82,900           58,100 
     Interest expense                             (100)         (27,800) 
                                           -----------      -----------
                                                82,800           30,300
                                            -----------      -----------
     Net loss before income taxes           (1,484,000)      (1,415,700
 
      
Income tax expense (Note 5)                       -                - 
                                          ------------      ------------
     Net loss                             $ (1,484,000)     $ (1,415,700) 
                                          ============      ============
Primary loss per share (Note 1) 
     Net loss per share                         $(0.22)          $ (0.21) 
                                          ============      ============
Fully diluted loss per share (Note 1) 
     Net loss per share                         $(0.22)          $ (0.21) 
                                          ============      ============ 

</TABLE>

See Notes to Consolidated Financial Statements.

<PAGE>

<TABLE>

<CAPTION>

MEDICAL DYNAMICS, INC. AND SUBSIDIARY 
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY 
YEARS ENDED SEPTEMBER 30, 1995 AND 1994 
 
                                                                         Additional
                            Common Stock          Treasury Stock           Paid-in        Accumulated
                          Shares     Amount     Shares      Amount         Capital           Deficit       Total
                         -------------------    ------------------       ----------       -----------      -----
<S>                      <C>       <C>            <C>       <C>          <C>              <C>            <C>
Balance,
  September 30, 1993     5,795,100  $ 5,800       -         $   -        $13,825,800     $(11,082,000)   $2,749,600
      
Proceed from sale of
  common stock
  (Note 4)                 974,700    1,000       -             -          2,601,800                -     2,602,800

Proceeds from exercise of
  common stock options
  (Note 4)                 115,600      100       15,900    (79,300)         147,900                -        68,700

Net loss                         -       -             -          -                -       (1,415,700)   (1,415,700)
                         ---------   ------      -------    -------        ---------       ----------     ---------

Balance,
  September 30, 1994     6,885,400    6,900       15,900    (79,300)       16,575,500     (12,497,700)    4,005,400

Sale and issuance
  of common stock           10,000        -            -          -            10,000               -

Net loss                         -        -            -          -                 -      (1,484,000)   (1,484,000)
                         ---------   ------       ------    --------       ----------       ----------    ---------

Balance,
  September 30, 1995     6,895,400   $6,900       15,900   $(79,300)       $16,585,500    $(13,981,700)  $2,531,400
                         =========   ======       ======    ========       ===========     ===========    =========
</TABLE>

See Notes to Consolidated Financial Statements.

<PAGE>

<TABLE>

<CAPTION>

MEDICAL DYNAMICS, INC. AND SUBSIDIARY 
CONSOLIDATED STATEMENTS OF CASH FLOWS 
YEARS ENDED SEPTEMBER 30, 1995 AND 1994 
                                             1995                1994 
<S>                                     <C>              <C>
Cash Flows from Operating Activities 
 Net loss                               $(1,484,000)        $ (1,415,000) 
      
 Adjustments to reconcile
 net loss to net cash (used in)
 operating activities:
     Depreciation and amortization           268,600             335,000 
     Provision for obsolete inventory        100,000                   -
     Gain on sale of loaner equipment        (51,200)            (68,400) 
     Loss on disposal of patents              76,700                   - 
     Change in assets and liabilities: 
      Decrease in trade receivables           66,200             267,500 
      (Increase) decrease in inventories     (79,900)            226,300 
      Decrease (increase) in
      prepaid expenses                         9,200              (3,700) 
      (Decrease) in accounts
      payable and accrued expenses            (7,800)            (278,200) 
                                         -----------             --------
          Net cash (used in)
          operating activities            (1,102,200)            (937,200)
                                         -----------             -------- 
      
Cash Flows From Investing Activities 
 Proceeds from sale of loaner equipment       52,600              108,100 
 Proceeds from maturity of
  certificate of deposit                      25,000               50,000 
 Proceeds from sale of investments           985,500                    -
 Advances on notes receivable-officer       (110,000)                   -
 Additions to patents                        (22,100)             (26,100) 
 Purchase of equipment                       (12,000)             (24,800) 
 Purchase of certificate of deposit          (10,000)             (25,000) 
 Purchase of investments                           -             (985,500) 
 Reductions (additions to) in deposits
  and cash surrender value 
   of life insurance                         113,300               (9,900) 
                                         -----------             --------
          Net cash provided by
          (used in) investing activities   1,022,300             (913,200) 
                                         -----------             --------
Cash Flows From Financing Activities 
 Proceeds from sale and
  issuance of common stock                        -              2,671,000 
 Payment of note payable -
  officer borrowings                              -              (248,200) 
 Payment of loans on life
  insurance policies                              -               (46,200) 
                                         -----------             --------
 
          Net cash provided by
          financing activities                    -              2,377,100
                                         -----------             ---------


<PAGE>

<CAPTION>

MEDICAL DYNAMICS, INC. AND SUBSIDIARY 
CONSOLIDATED STATEMENTS OF CASH FLOWS, continued 
YEARS ENDED SEPTEMBER 30, 1995 AND 1994 
 
                                             1995            1994
<S>                                       <C>              <C>     
Increase (decrease) in cash
 and cash equivalents                      (79,900)         526,700 
      
Cash and cash equivalents: 
 Beginning                                1,151,600         624,900 
                                        -----------     -----------
 Ending                                 $ 1,071,700     $ 1,151,600 
                                        ===========     =========== 
Supplemental Disclosures of
 Cash Flow Information 
 Cash paid during the year
  for interest                          $       100     $    10,000 
                                        ===========     ===========
Supplemental Schedule of
  Noncash Investing  
  and Financing Activities 
 Net loaner equipment
  transfers from inventory              $    15,700     $    20,500
                                        ===========     ===========
 Common stock issued to
  purchase equipment                    $    10,000     $         -
                                        ===========     ===========
 Treasury stock acquired in
  exchange for issuance of common 
  stock upon exercise of stock options  $         -     $    79,300
                                        ===========     ===========
 Note payable - officer paid by
  reduction of prepaid interest         $         -     $    91,800
                                        ===========     ===========
      

</TABLE>
See Notes to Consolidated Financial Statements.


MEDICAL DYNAMICS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1.   Significant Accounting Policies

Nature of business:

Medical Dynamics, Inc. and Subsidiary (the Company) are engaged in the
design, development, manufacture and marketing of medical video cameras and
related surgical disposable products for a variety of medical specialties. 
These products are sold directly to hospitals, health care professionals,
wholesalers, and original equipment manufacturers throughout the United
States and foreign markets.  Sales are typically made on terms of net 90
days, though some extended terms are offered on foreign sales, to match terms
normally offered in certain countries.

Principles of consolidation:

The financial statements include the accounts of the Company and its
wholly-owned subsidiary, MedPacific Corporation.  All significant
intercompany accounts and transactions have been eliminated.

Use of estimates in the preparation of financial statements:

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 and disclosures 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.  The Company's significant
estimates includes allowance for doubtful trade accounts receivables and an
obsolete inventory reserve.  These reserves are established based on review
of accounts receivable and past debt history and a review of inventory usage,
receptively.

Cash and cash equivalents:

For purposes of reporting the consolidated statements of cash flows, the
Company includes all cash accounts, which are not subject to withdrawal
restrictions or penalties, and all highly liquid debt instruments purchased
with a maturity of three months or less as cash and cash equivalents on the
accompanying consolidated balance sheets.  Cash equivalents include a mutual
fund backed by U.S. Government and Government Agency Securities.    

Investments:

Investments, which consists of a certificate of deposit, and U.S. Government
Securities at September 30, 1994,  are carried at amortized cost, which
approximates fair market value.

Inventories:

Inventories are stated at the lower of cost (first-in, first-out method) or
market. All inventory is classified as a current asset although part of such
inventory, because of current sales volume, is not anticipated to be utilized
within one year.

Equipment:

Equipment is stated at cost.  Depreciation and amortization is computed
principally by the straight-line method over the following estimated useful
lives:

                                       Years 
Loaner equipment                       3 
Machinery and equipment                3 - 10 
Furniture and fixtures                 3 - 10 
 
Improvements to leased property are amortized over the lesser of the life of
the lease or life of the improvements.

Patents and trademarks:

Patents and trademarks are stated at cost and are amortized over their
estimated economic lives up to ten years.  In the event patents pending are
not granted, the related costs will be charged to operations.  The Company
reviews its patents annually to determine potential impairment by comparing
the carrying value of the intangible with expected future net cash flows
related to the patent.  An impairment loss would be recognized if the Company
determined the carrying value exceeded the fair market value of the patent.

Warranty accrual:

The Company provides a warranty against defects in materials and workmanship,
generally for a period between one month and two years following the date of
sale of the equipment.  Estimated future costs of product warranties are
charged to selling, general and administrative expenses.

Income (loss) per common share:

For the years ended September 30, 1995 and 1994 earnings per share are
computed based upon 6,879,500 and 6,602,400, weighted average common shares
outstanding for both primary and fully-diluted earnings per share.  Shares
issuable under common stock purchase warrants and common stock options were
excluded from the computation of earnings per share because the effect was
deemed to be anti-dilutive.  

Income tax matters:

Deferred taxes are provided on a liability method whereby deferred tax assets
are recognized for deductible temporary differences and operating loss and
tax credit carryforwards and deferred tax liabilities are recognized for
taxable temporary differences.  Temporary differences are the differences
between the reported amounts of assets and liabilities and their tax bases. 
Deferred tax assets are reduced by a valuation allowance when, in the opinion
of management, it is more likely than not that some portion or all of the
deferred tax assets will not be realized.  Deferred tax assets and
liabilities are adjusted for the effects of changes in tax laws and rates on
the date of enactment.

Revenue recognition:

The Company recognizes all revenue when it receives a valid purchase order
and ships completed, finished products to a customer.

Other operating revenue:

Other operating revenue includes product service revenue of $41,300 and
$59,800 for the years ended September 30, 1995 and 1994, respectively.

Note 2.   Inventories

Inventories consist of the following at September 30, 1995 and 1994:

<TABLE>

<CAPTION>
                                          1995               1994 
                                          ----               ----
<S>                                   <C>                <C>
Raw materials, purchased,
and replacement parts                  $466,100           $ 534,700 
Finished goods                          656,400             525,700 
Work in process                          26,000              23,900 
Obsolete inventory reserve             (200,000)           (100,000)
                                        -------             ------- 
                                       $948,500            $984,300
                                        =======             ======= 
         

</TABLE>

Note 3.  Note Receivable - Officer and Related Party Transactions

Note receivable - officer consists of a note due from an entity owned by the
Company's Chairman (the Chairman).  The note is due January 15, 1996 and
bears interest at prime plus 1% (8.75% at September 30, 1995).  The note is
secured by all amounts due or which may become due to the Chairman under a
license agreement with the Company (See Note 6).

In a related transaction, the Company transferred to the entity owned by the
Chairman the licensed right to patents with a net book value of approximately
$21,000. The patents had originally been obtained from the Chairman under the
license agreement described above, and were transferred because the Company
was unable to obtain FDA approval for products using the patents.  The
related entity has since obtained FDA approval and has entered into an
exclusive agreement to have the Company distribute all products it
manufactures.  The agreement runs through June 30, 2000.  The Company has
purchased approximately $25,000 of products under the agreement at September
30, 1995, this amount was also  included in accounts payable at September 30,
1995.  There has been no significant sales of the products purchased under
the agreement.

Note 4.  Common Stock (see also Note 6)

Stock option plan:

The Company has a stock option plan under which options to purchase common
stock are granted generally at not less than the fair market value of the
stock at the date of grant.  The Board of Directors approved the plan on July
14, 1988 and a majority of the Company's stockholders approved the plan in
October 1988.  An aggregate of 1,000,000 shares were reserved for issuance
pursuant to the terms of the plan.  Activity in the stock option plan for the
last two years is as follows:


<TABLE>

<CAPTION>
                                         Stock Option Plan 
                                       -----------------------
                                                     Average 
                                       Number of      Price 
                                         Option     Per Option 
                                       -----------------------
<S>                                    <C>              <C>
Outstanding 
 September 30, 1993                     282,700         $1.93 

 Granted                                      -             -
 Exercised                             (115,600)         1.28 
 Canceled and expired                    (7,300)         1.82
                                       --------         -----
          
Outstanding 
 September 30, 1994                      159,800         2.47 
         
 Granted                                       -            -
 Exercised                                     -            -
 Canceled and expired                    (26,700)        1.33 
                                       ---------        -----
Outstanding 
 September 30, 1995                       133,100       $2.69 
                                       ==========       =====

</TABLE>

The range of exercise prices of options exercised was $.85 to $3 in 1995 and
1994.  During 1994 treasury stock was acquired in exchange for issuance of
common stock pursuant to options exercised.  At September 30, 1995, shares of
common stock reserved for issuance under options totaled 133,100.  Options
available for future grant at September 30, 1995 totaled 83,100.  

The Board has also agreed to issue options to purchase shares of the
Company's common stock to certain employees as part of their compensation
package.  The option price on these options will be the market price on the
date authorized.  None of these options have been approved under a qualified
plan by the stockholders and, as such, have certain holding period
requirements and trading restrictions.

During 1994, the Company sold 974,700 shares of its common stock for
$2,602,800.  The sale of the shares were made pursuant to a Regulation S
placement.  Under Regulation S, sales can only be made to qualified foreign
investors, and must be held by the purchasers for a requisite period of time
and meet other Regulation S requirements before they are able to sell the
shares in the United States.  The shares were sold at a discount of 37.5% to
40% of the closing bid price of an average of three days prior to the sale.


Note 5.  Income Taxes 

Under the provisions of the Internal Revenue Code, the Company has available
for federal income tax purposes, net operating loss and business tax credit
carryforwards of approximately $14,500,000 and $188,000, respectively, which
expire in varying amounts from 1996 through 2010.

The net operating loss and business tax credit carryforwards described above
gives rise to a deferred tax asset of approximately $5,500,000.  This asset
is recorded net of a valuation allowance of the same amount, therefore no
amounts are reflected in the accompanying balance sheet.

The actual provision for income taxes varied from the expected provision for
income taxes (computed by applying the statutory U.S. Federal income tax
rates to loss before taxes) due to the above carryforward and related
valuation allowance.

Note 6.  Commitments and Contingencies

The Company has incurred continued substantial operating losses , negative
cash flows from operations and has had trouble obtaining FDA approval on new
products, the Company's future viability depends on its ability to increase
sales and become profitable.  To this end the Company will look for new OEM
customers, increase marketing efforts on  new products, explore distribution
of products to new medical specialties, continue to expand in the foreign
market place, and believes it will no longer have difficulty obtaining FDA
approval on new products.  However, there are no assurances that these
efforts will result in a long-term increase in sales, profitability and cash
flows, to allow for the long-term viability of the Company.  The financial
statements do not include any adjustment relating to the recoverability of
recorded asset amounts, or the amounts of liabilities that might be necessary
should the Company not be able to continue in existence, including the
write-off of patents that would revert back to the Chairman under a licensing
agreement.

Recently, the cost of health care has risen significantly, and there have
been proposals by legislators, regulators and third party health care payors
to curtail these cost increases.  Some proposals have involved limitations on
the amount of reimbursement for specific surgical procedures.  The Company is
unable to predict the changes to be made in the reimbursement procedures
utilized by third party health care payors.  In addition, hospitals and other
health care providers have become increasingly price competitive, and in some
instances, put pressure on medical suppliers to lower their prices.  As a
result, the Company is unable to predict the financial impact of these
factors.

The Company has various agreements to pay royalties to both a former officer
and current directors of the Company.  These royalties are based on the sales
of specified products, some of which are no longer manufactured by the
Company.  In June, 1987, the Company entered into a license agreement with
its then CEO and Chairman relating to the use of certain technology invented
and developed by the Chairman.  In connection with the agreement, the Company
has agreed to pay royalties based on the greater of 2% of the sales of
products which relate to this technology or the minimum annual royalties as
described below.  For the years ended September 30, 1995 and 1994 the Company
accrued $120,000 in royalty expense of which $90,000 remained unpaid at each
year end.  The June, 1987 license agreement, as further amended, requires the
Company to pay the Chairman minimum annual royalties of $120,000 for fiscal
1994 and beyond.  The agreement does not specify the termination date, though
both parties can terminate the agreement under certain circumstances.  The
Chairman can terminate the agreement with 45 days prior written notice upon
default by the Company of its obligations under the agreement, and for
specific technologies upon acquisition by another person of 20% or more of
the outstanding stock of the Company unless, the acquior provides notice of
its intention to commercially exploit the specific technologies.  The
agreement will terminate automatically if the Company is involved in a
bankruptcy proceeding.  In the circumstances described, the rights to be
patents would revert back to the Chairman.  Also under the agreement any
patents not commercially developed by the Company in three years will revert
back to the Chairman.  During 1995, approximately $62,000 of patents were
written off when the rights reverted back to the Chairman under this
provision.

On December 1, 1995, the Chairman agreed to waive all payments due him under
the above license agreement for the year ended September 30, 1996, in
exchange for stock options to purchase 120,000 shares of common stock at $1
per share.

On October 8, 1992, the Company's Board of Directors issued options to
purchase 300,000 shares of the Company's common stock at $4 per share to the
Chairman in exchange for a license to develop and market certain patents
rights and technology developed by the Chairman.  The Company has agreed to
register the options under certain circumstances.  In connection therewith,
the Board amended its 1987 license agreement and incorporated this technology
in exchange for the options granted.  The options can be exercised through
October 2002.  These options were not granted pursuant to a qualified plan
and, as such, are subject to certain holding period requirements and trading
restrictions.  The commitments relating to the 1987 license agreement
discussed in the previous paragraph were not changed by the above amendment.  

During fiscal 1995 and 1994, the Company granted stock options, totaling
216,200 and 100,000, respectively, at the then current market price, to
certain officers, employees and sales representatives of the Company.  The
stock options were granted as part of their compensation package to certain
officers and employees for both past and future service and as incentives to
certain affiliates for future services to be performed.  The Company may, in
the future and at its discretion, decide to grant additional options to
certain officers, employees and affiliates in lieu of compensation or
services performed by those individuals or entities.  These options are not
pursuant to a qualified plan and, as such, will be subject to certain holding
period requirements and trading restrictions.  In all cases, options were
granted at market prices in effect at the time of grant.  At September 30,
1995, a total of 491,900 options have been granted, at an average price per
option of $2.36.  None of the options have been exercised.  These option
expire, beginning with 4,000 in the year ending September 30, 1997, 112,000
in 1998 and 375,900 in 2004.

The Company is committed to either compensating certain officers and
employees at market rates or granting additional stock options as part of
their compensation package.  Under these circumstances, the Company and
employee will mutually agree, on an annual basis, to the most beneficial
compensation arrangement, subject to the employee or affiliate performing
agreed upon future services.

The Company is regulated by the federal Food and Drug Administration (FDA). 
The Company cannot ensure that an adverse financial impact will not occur
should the FDA find the Company's Good Manufacturing Practices are in
non-compliance with current Federal regulations.  If the FDA finds that a
manufacturer is not in compliance, the manufacturer may be prohibited from
marketing the products for which they are not in compliance, until such time
as the manufacturer complies with the applicable FDA regulation.  The Company
has recently had difficulty obtaining FDA approval on new products due to
past findings during FDA inspections.  However, the Company does not expect
problems in the future due to a  change in FDA policy.

The Company conducts its operations from leased facilities and leases certain
equipment.  The terms of the facilities lease require the Company to pay all
maintenance, utilities, property taxes and insurance.  Rent expense has been
recorded on a straight-line basis over the life of the lease.  Following is a
schedule of future minimum commitments under operating leases having an
initial or remaining term of more than one year.

Years Ending September 30, 
1996                                   $152,000 
1997                                    162,600
1998                                    171,100 
                                        -------
                                       $485,700 
                                        =======

Total rent expense was $136,300 and $113,000 for the years ended September
30, 1995 and 1994, respectively.

Note 7.  Foreign Sales

The Company had export sales of $456,600 and $596,400 for the years ended
September 30, 1995 and 1994, respectively.  The sales are made in United
States dollars.
 
Note 8.  Officers Life Insurance and Split-Dollar Agreement

In August, 1990,  the Company purchased a $1,000,000 convertible term key-man
life insurance policy on its Chairman.  Subsequent to the end of the year,
the Company terminated this plan due to cost cutting measures. The Company
also has a $100,000 whole life key-man insurance policy on its Chairman which
was acquired in 1985.  The convertible term policy is renewable annually
through year 2003.

Additionally, in August, 1990, the Company entered into a split-dollar life
insurance agreement with an irrevocable trust established by the Chairman and
Secretary of the Company.  The Company has agreed to pay substantially all of
the annual premiums on a $2,000,000 whole-life, second-to-die policy which
has the insurance trust as the beneficiary.  The split-dollar agreement
specifies that the Company will receive the greater of premiums paid or cash
surrender value upon the second insured's death.  However, should the Company
decide not to pay the premium prior to the second insured's death, the
Company would only collect premiums paid to the extent of the cash surrender
value.  As such, the Company has recorded the premiums paid in the
accompanying consolidated balance sheets to the extent of cash surrender
value.  At September 30, 1995 and 1994 $13,000 and $121,000 of cash surrender
value was recorded, respectively.  Subsequent to the end of the year, the
Company terminated this plan due to cost cutting measures

Note 9.  Employee Benefit Plans

Effective January 1, 1990, the Company adopted employee benefit plans under
Internal Revenue Code Sections 401(k) and 125.  The 401(k) plan is a profit
sharing plan whereby both employees and the Company are entitled to
contribute a portion of compensation and earnings, respectively, to
investment funds to supplement employee retirement benefits.  Under the IRS
Section 125 cafeteria plan, employees may contribute to the cost of health
care premiums with pre-tax dollars.  Both plans were approved by the Board of
Directors.  The Company incurred $900 and $1,100 for the years ended in
September 30, 1995 and 1994, respectively, in 401(k) benefit expense and
$23,000 and $34,000 in Section 125 benefit expense for the years ended
September 30, 1995 and 1994, respectively.  


Note 10.  Major Customers

Sales to customers for 10% or more of revenues for the year ended September
30, 1995 and the related ending accounts receivable balance at September 30,
1995 are as follows:

<TABLE>

<CAPTION>

                                               1995
                                       ----------------------- 
Customer                               Sales        Receivable 
-------------------------------------------------------------- 
<S>                                    <C>            <C>
A                                      $297,700       $145,900 
B                                      $   *          $  *
 


                                               1994 
                                       -----------------------
Customer                               Sales        Receivable
                                       -----------------------

A                                      $ 227,000      $ 99,000
B                                      $ 189,300      $ 94,000 
         
</TABLE>

*had less than 10% of sales in 1995

<PAGE>

Medical Dynamics, Inc.
Englewood, Colorado


In planning and performing our audit of the financial statements of Medical
Dynamics, Inc. for the year ended September 30, 1995, we considered its
internal control structure in order to determine our auditing procedures for
the purpose of expressing our opinion on the financial statements and not to
provide assurance on the internal control structure.  However, we noted
certain matters involving the internal control structure and its operation
that we consider to be reportable conditions under standards established by
the American Institute of Certified Public Accountants.  Reportable
conditions involve matters coming to our attention relating to significant
deficiencies in the design or operation of the internal control structure
that, in our judgment, could adversely affect the Company's ability to
record, process, summarize, and report financial data consistent with the
assertions of management in the financial statements.


One person performs virtually all of the accounting and financial duties.  As
a result, most of those aspects of internal control procedures which rely
upon an adequate segregation of duties are, for all practical purposes,
missing in your Company.  We recognize that your Company may not be large
enough to make the employment of additional persons for the purpose of
segregating duties practicable from a financial standpoint, but we are
required, under our professional responsibilities, to call the situation to
your attention.  


This report is intended solely for the information and use of the audit
committee, management, and others within the Company.






Denver, Colorado
November 27, 1995























                                                                    18<PAGE>