UNITED STATES
                 SECURITIES AND EXCHANGE COMMISSION
                       Washington, D.C.  20549
                                  
                              FORM 10-K
(Mark One)

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

For the fiscal year ended     September 30, 1998

                                 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:  0-28946

                      Vivid Technologies, Inc.
       (Exact name of registrant as specified in its charter)
                                  
             Delaware                        04-3054475
     (State of incorporation)   (I.R.S. Employer Identification No.)

10E Commerce Way, Woburn, Massachusetts        01801
(Address of principal executive offices)     (Zip Code)

                           (781) 938-7800
        (Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

        Title of Each Class    Name of Each Exchange on Which Registered
               None                              None

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

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

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

The aggregate market value of the Registrant's Common Stock, $.01 par
value,  held  by non-affiliates of the registrant as of November  30,
1998  was $68.9 million based on the price of $8.06 on that  date  on
the  Nasdaq  National  Market.  As of December  14,  1998,  9,908,116
shares  of the Registrant's Common Stock, $.01 par value, were issued
and outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

(1)  Portions of the Company's Proxy Statement involving the election
     of directors, which is expected to be filed within 120 days after the
     end of the Company's fiscal year, are incorporated by reference in
     Part III (Items 10, 11, 12 and 13) of this Report.


                               Part I

Item 1.  Business

     Information contained in this Report contains forward-looking
statements such as statements of the Company's plans, objectives,
expectations and intentions, that can often be identified by the use
of forward-looking terminology, such as "may," "will," "expect,"
"anticipate," "believe," "plan," "intend," "could," "estimates," "is
being" or "goal" or other variations of these terms or comparable
terminology.  Such statements, which include statements relating to
the anticipated growth of the market for explosives detection
equipment, the Company's ability to develop and market new products
and the Company's ability to enter new markets, and other matters are
subject to risks and uncertainties that could cause actual results to
differ materially from those anticipated.  The cautionary statements
made in this Report should be read as being applicable to all forward-
looking statements wherever they appear in this Report.  The forward-
looking statements contained herein speak only as of the date of this
Report.  Vivid expressly disclaims any obligation or undertaking to
release publicly any updates or revisions to any such statement or
reflect any change in Vivid's expectations or any change in events,
conditions or circumstances on which any such statement is based.
Factors that could cause or contribute to such differences include
those discussed in the risk factors set forth in Item 7 below (the
"Risk Factors") as well as those discussed elsewhere herein.

     Vivid Technologies, Inc. ("Vivid" or the "Company") is a leading
developer, manufacturer and marketer of automated inspection systems
that detect explosives in airline checked baggage.  The Company also
offers a system that can be used to screen carry-on baggage and
enhance building security.  The Company's family of advanced
explosives detection systems identify targeted materials by analyzing
the physical characteristics of each item in a bag or parcel,
including the atomic number and mass, using patented composition
analysis techniques and proprietary dual energy X-ray technology.
These systems automatically (without the use of an operator) isolate
and identify targeted materials within a bag or parcel, thereby
preventing a suspect bag or parcel from being loaded into an aircraft
or entering a building until cleared by operator inspection.  The
Company's systems can also be used to identify a wide variety of
other substances, including drugs, currency and agricultural
products.

     In 1993, the Company's automated systems were successfully
deployed in airports as part of an integrated multi-level checked
baggage screening approach that is being adopted in many countries
throughout the world.  As of September 30, 1998, the Company had sold
289 systems worldwide including 30 Model APS for hand baggage and
parcel inspection.  Airports at which the Company's systems are
deployed include JFK International Airport in New York, London
Heathrow and London Gatwick, Paris Charles de Gaulle and Paris Orly,
Hong Kong International Airport at Chek Lap Kok, Malaysia's Kuala
Lumpur International Airport, Malpensa in Milan, King Khalid
International Airport in Riyadh, Amsterdam Airport Schiphol, Zurich
Airport, Brussels Airport, and Spain.

     The Company was incorporated as a Massachusetts corporation in
May 1989 under the name of QDR Security, Inc.  The Company changed
its name to Vivitech, Inc. in June 1989 and was renamed Vivid
Technologies, Inc. in September 1989.  In October 1996, the Company
changed its state of incorporation to Delaware.

Industry Background

     Markets.  There are over 600 commercial airports worldwide
providing scheduled service to more than 2.5 billion passengers per
year.  Of these airports, over 400 are located in the United States,
150 in Europe and 50 in the Asia-Pacific region.  Based upon the
installations of the Company's systems, the Company believes that one
integrated multi-level checked baggage screening system can serve up
to approximately one million passengers per year in mid-size and
large airports.  The capabilities of each integrated multi-level
system at each airport, as well as the number of systems required,
will vary depending upon a variety of factors, including the
explosives detection equipment deployed, the configuration of the
airport's baggage handling systems, the nature of the integration of
the explosives detection equipment with the airport's baggage
handling systems and the profile of the airport's passenger traffic
flow.  Airports deploying advanced explosives detection equipment,
including smaller airports, may choose to implement freestanding
systems in addition to or as an alternative to integrated systems.

     The Company believes that the implementation of effective
checked baggage screening will highlight the ineffectiveness of
conventional X-ray systems to identify explosives in carry-on
baggage.  The United Nations International Civil Aviation
Organization ("ICAO") requires all 185 contracting states to inspect
100% of international carry-on baggage for the detection of weapons,
and virtually all airports use conventional X-ray systems for this
purpose.  The Company believes that several thousand of these
conventional X-ray systems are installed in airports throughout the
world, and that these systems are candidates for replacement with
more sophisticated systems.

     Market Evolution and Government Initiatives.  In the 1970s, in
response to hijackings, airports worldwide began to install X-ray
systems to screen carry-on baggage for weapons such as guns and
knives.  When combined with walk-through metal detectors, these
systems substantially reduced the number of airplane hijackings.  The
success of these systems in airports also fostered their adoption for
use by governmental agencies and private companies.  As the threat to
civil aviation evolved in the early 1980's from hijackings to
bombings, many countries required checked baggage on international
flights to be inspected.  Most equipment initially deployed for this
purpose has been conventional X-ray systems that only provide an
operator with an image for interpretation.  Although conventional X-
ray systems are effective for the detection of weapons made from
dense materials with defined shapes, such as guns and knives, they
are ineffective in detecting explosive materials that are not as
dense and can be molded into virtually any shape.

     In response to the December 1988 bombing of Pan American Flight
103 over Lockerbie, Scotland, many countries began the installation
of systems that could detect plastic and other explosives in airline
baggage.  Europe, led by the United Kingdom, has been at the
forefront of deploying advanced automated explosives detection
equipment.  The United Kingdom's commercial airports have achieved
100% screening of international checked baggage in response to a
mandate from the UK Department of the Environment Transport and the
Regions (formerly Department of Transport).  The European Civil
Aviation Conference ("ECAC"), an organization of 37 member states,
has resolved to implement 100% screening of international checked
baggage.  Several of those countries, including Belgium, France,
Germany, Italy, Spain and Switzerland, have begun to implement
checked baggage screening approaches similar to that adopted by the
United Kingdom.

     In 1993, BAA plc ("BAA"), formerly the British Airport Authority
and one of the first airport operators to implement 100% checked
baggage screening using automated explosives detection equipment,
developed a multi-level automated screening approach that integrates
the explosives detection equipment directly into the airport baggage
handling systems.  The multi-level approach, which is being adopted
throughout Europe and the Asia-Pacific region, separates the
screening process into multiple steps, and permits the use of
equipment at each stage that is most suitable for the requirements of
that particular stage.

     Under the multi-level approach, a fully-automated Level 1
explosives detection system is integrated into the existing airport
baggage handling system to screen rapidly all baggage without an
operator in attendance.  Bags rejected by the Level 1 system are
subjected to Level 2 inspection.  Level 2 inspection equipment allows
an operator to review and manipulate images of the contents of the
rejected bags provided by a Level 1 system.  If the operator rejects
the bag, it is forwarded for Level 3 inspection.  Level 3 inspection
is the slowest and most detailed process.  Bags rejected at Level 3
are then opened and inspected by hand in the presence of the
passenger.  Bags not rejected at any inspection level are conveyed by
the baggage handling system for loading into the aircraft.  This
multi-level approach, when implemented with rapid automated
explosives detection equipment, can maintain the processing rates of
existing baggage handling systems.  The multi-level approach also
significantly reduces operating costs by reducing staffing
requirements.

     Level 1 inspection systems, which must inspect all baggage on a
conveyor line, are often required to inspect baggage during peak
periods at the rate of 900 to 1,500 bags per hour (2.4 to 4.0 seconds
per bag) in order to avoid delays in the baggage handling process.
Level 2 inspection systems are often required to process baggage at
the rate of 180 to 360 bags per hour (10 to 20 seconds per bag).
Level 3 systems can be slower to accommodate the greater precision
required for the operator to fully inspect the bag in order to avoid
the undesirable and expensive final inspection process, which
requires the bag to be reunited with the passenger and inspected by
hand.

     In the Asia/Pacific region, two major new airports in Malaysia
and Hong Kong purchased integrated systems and commenced operations
in 1998 with 100% checked baggage screening in place.  Other new
airports and terminals in the region, including those in Singapore,
South Korea and Thailand, are being designed to include 100%
screening of international checked baggage using advanced automated
explosives detection systems.  Australia and New Zealand intend to
implement checked baggage screening in advance of the Sydney Olympic
games in 2000.  Other countries in the region, including Japan and
the Philippines are also studying the implementation of these systems
at existing airports.

     Following the Pan American Flight 103 bombing, the United States
enacted the Aviation Security Improvement Act of 1990 (the "Aviation
Security Act").  The Aviation Security Act directed the Federal
Aviation Administration (the "FAA") to develop a standard for
explosives detection systems and required airports in the United
States to deploy systems meeting this standard by 1993.  The FAA
certified a prototype computed tomography ("CT") system in November
1998.  The commercial production model of this system will require
further certification.  Other CT systems were certified in December
1994 and April 1998, but, thus far, have failed to demonstrate that
they meet the requirements for 100% checked baggage screening under
realistic operating conditions.  As a result, there have been only
limited purchases and installations of automated explosives detection
systems in the United States.  Although ECAC has adopted a standard
similar to the FAA standard as a long-term goal, they have allowed
and promoted the deployment of effective systems even though they do
not meet the performance standards that have been adopted.

     In response to the crash of TWA Flight 800 off Long Island, New
York in July 1996, President Clinton formed the White House
Commission on Aviation Safety and Security, chaired by Vice President
Gore (the "Gore Commission"), to review airline and airport security
and oversee aviation safety.  The Gore Commission released its
initial and final reports in September 1996 and February 1997,
respectively, and in October 1996, the United States enacted the
Federal Aviation Re-Authorization Act of 1996 (the "Re-Authorization
Act") which included an allocation for the purchase of explosives
detection systems and other advanced security equipment by air
carriers and airport authorities.  The Re-Authorization Act requires
that, until such time that the FAA determines that the equipment
certified by the FAA is commercially available and has successfully
completed operational testing, the FAA shall facilitate the
deployment of other commercially available explosives detection
devices which the FAA determines will enhance aviation security.
During 1997 and 1998, the FAA purchased a variety of state-of-the-art
explosives detection devices from several manufacturers, including
eight systems from the Company.

     In October 1998, Congress approved and the president signed the
fiscal 1999 budget, which includes $100 million for the purchase and
installation of explosive detection systems and other advanced
security equipment.  This level of funding is consistent with the
Gore Commission's recommendation that $100 million be spent annually
for several years to upgrade the nation's aviation security.
Included in the $100 million for fiscal 1999 is a recommendation to
purchase operator assist X-ray systems for the screening of carry-on
luggage.

     Implementation of Checked Baggage Systems.  Effective screening
of checked baggage for explosives and other contraband is a complex
task.  To accomplish this task while meeting the operational
requirements of airports, a screening system must be flexible,
accurate, fast, reliable and cost-effective.  The screening system
must have the ability to effectively identify a wide range of
explosives, including plastic explosives that can be molded into
virtually any shape.  In addition, the system must have an acceptable
false alarm rate, rejecting only a limited percentage of explosive-
free luggage.  The system must also process baggage rapidly and have
limited downtime to avoid delays.  Costs associated with installation
include the cost of modifying the airport's baggage handling system
to accommodate the explosives detection equipment and the cost of
integrating that equipment with the baggage handling system.  A key
component of the cost of operation is the staffing associated with
operating these systems.

     Several advanced explosives detection systems have been
developed to address these requirements, each with its own inherent
advantages and limitations.  These systems include dual energy X-ray,
trace detection and CT systems.  Dual energy X-ray systems measure
the X-ray absorption properties of a bag's contents at two different
X-ray energies to determine if any of the items have the physical
characteristics of explosive materials.  Trace detection equipment,
known as "sniffers," detects particulate and chemical traces of
explosive materials collected by manually wiping or vacuuming the bag
under inspection.  CT systems use hundreds of partial X-ray images,
referred to as slices, to analyze the contents of a bag.

     Implementation of Carry-on Baggage Systems.  There are currently
no requirements for the use of automated explosives detection systems
to screen carry-on baggage.  However, the presence of explosives in
carry-on baggage poses a serious threat to civil aviation.  A
published industry source estimated that approximately one quarter of
bombs smuggled on board aircraft were hidden in carry-on baggage.  As
the global implementation of hold baggage systems continues,
regulators are shifting their focus to the detection of explosives in
carry-on baggage.  The final report of the Gore Commission
recommended that the FAA begin conducting feasibility studies with
regard to the use of advanced explosives detection equipment for
carry-on baggage systems.   Included in the $100 million federal
budget for fiscal 1999 is a recommendation to purchase operator
assist X-ray systems for the screening of carry-on luggage.

     Non-aviation Hand Baggage Inspection Systems.  A number of
governmental agencies and private sector organizations in the United
States and abroad are interested in utilizing advanced explosive
detection equipment to enhance facility security.  Recent terrorist
attacks including the August 1998 bombings of two U.S. embassies in
Africa have spurred the agencies request additional funding to
upgrade security at domestic and international facilities.  The
General Services Administration has approved the Company's Model APS
for building protection.  Through September 30, 1998 the Company had
sold 21 systems for facility protection.

Products

     The Company develops, manufactures and markets a family of
advanced automated systems that can detect explosives and other
contraband in airline baggage and other parcels.  The first market to
emerge for these systems has been explosives detection for airline
baggage.  The Company's product line includes Level 1 and Level 2
integrated automated explosives detection systems for checked
baggage, freestanding automated explosives detection systems for
Level 3, terminal and baggage hall inspection of checked baggage, and
an automated explosives detection system for carry-on baggage, hand
baggage and parcels.  As of September 30, 1998, the Company had
shipped and installed approximately 260 systems for use in airports
and high-security facilities throughout Europe, the Asia-Pacific
region, the Middle East and North America.

     Each of the Company's automated checked baggage explosives
detection systems uses a proprietary instrumentation quality power
supply that generates alternating high (150kV) and low (75kV) energy
pulses at film safe levels of exposure.  The power supply is driven
by an X-ray controller that uses both current and source voltage
feedback to maintain a stable, repeatable fan shaped X-ray beam.  As
the X-ray beam passes through the bag and its contents, a portion of
the beam is absorbed (referred to as X-ray absorption or attenuation)
and a portion is scattered.  The beam that passes through the bag
without being absorbed or scattered is referred to as the transmitted
beam and contains information regarding the X-ray absorption
properties of the objects within the bag at each of the two levels of
energy generated by the X-ray tube.  This information can be used to
analyze the atomic number, mass and other physical characteristics of
the objects within the bag.  The transmitted beam also contains
information that can be used to make high quality images of the
contents of a bag.

     The Company's automated checked baggage explosives detection
systems incorporate a high resolution detector array that collects
high quality data from the transmitted X-ray beam consisting of more
than one million pixels of information per bag.  The systems then
employ the Company's patented composition analysis software
algorithms to identify and separate the individual objects within a
bag, including objects between other items or within a container.
These algorithms also analyze the atomic number, mass and other
characteristics of each of those objects to determine whether they
match those of a targeted item, such as explosives or other
contraband.  Additional algorithms detect materials such as lead that
could be used to shield an explosive device from this analysis.

     X-ray absorption analysis techniques are less effective for
detecting certain configurations of explosives which only absorb a
very small fraction of the transmitted beam.  However, these
materials tend to scatter X-rays more than other materials.  The
Company has developed proprietary scatter detection enhancement
("SDE") technology that enhances its systems' ability to detect these
configurations.  The Company's SDE technology, which includes a
combination of additional detector arrays and software, measures and
analyzes the scattered X-ray intensity emitted from baggage in both
the forward and backward direction.  If the scatter levels indicate
the possible presence of a suspect material in a bag, the affected
area is further analyzed to determine if a threat is present.  The
Company has incorporated SDE technology in most of its checked
baggage inspection products, either as an option or a standard
feature, and also offers this technology as an upgrade for existing
systems.

     Both the Company's composition and scatter analysis techniques
result in a computer-generated decision regarding the contents of the
baggage screened.  Any bag that is determined to contain a suspect
object will cause the system to reject the bag.  In the case of an
operator-attended system, such as a Level 2 or Level 3 system, an
image of the rejected bag is presented to an operator for detailed
inspection.  The bag image is presented in high-resolution gray
scale, with the suspect object highlighted in color.  The system can
be programmed to sound an alarm, as well as require the operator to
acknowledge the alarm by pressing a designated button to either
reject or clear the bag.

     The Company has integrated its products into a wide range of
airport baggage handling systems.  These products make use of an
effective control software developed by the Company to facilitate
communication between the explosives detection system and the airport
baggage handling system.  If no suspect object is detected by the
automated system, a "clear" status is sent to the baggage handling
system, allowing the bag to continue directly to the aircraft.  If a
suspect object is detected, a "reject" message is sent to the baggage
handling system, requiring the next level of inspection.  The Company
has gained broad acceptance of its control software by working
closely with many of the major baggage handling systems and control
systems contractors.

     The Company's systems are offered in a variety of configurations
depending on the application or installation requirements.

     Integrated Models.  The Company's first integrated products were
the VIS Level 1 inspection system and the VDS Level 2 inspection
system.  The VIS Level 1 system is used to inspect 100% of the
baggage on a baggage conveyor line.  The system is capable of
automatically inspecting up to 1,500 bags per hour without an
operator.  The VDS Level 2 system is designed to provide an operator
with a high quality image in addition to automatically highlighting
suspicious objects as an aid to the operator to inspect bags rejected
by the automated Level 1 system.  The system also allows the operator
to view the contents of a bag using various imaging modes and
magnifications to determine whether the bag should be cleared or sent
to Level 3 for additional investigation.

     The VIS-W was the Company's first single system alternative to
discrete Level 1 and Level 2 systems.  The VIS-W combines a VIS Level
1 X-ray system ("VIS mainframe") with a single remote Level 2
operator workstation.  The VIS mainframe transmits images of rejected
bags to the Level 2 operator workstation.  Level 2 inspection is then
performed by an operator at a workstation in the same manner as an
operator of a discrete Level 2 VDS system, thereby eliminating the
need for a separate Level 2 explosives detection system to re-scan
all bags rejected at Level 1.

     The VIS-M, introduced in April 1996, further extends the
capability of the workstation concept by allowing several VIS
mainframes to be interconnected ("Matrixed") with multiple Level 2
operator workstations.  During off-peak periods, workstations can be
switched off, thereby significantly reducing staffing requirements
and operating costs.  The efficiency gained by the additional
workstations combined with enhanced baggage control software allows
an operator to review images of the contents of a bag while the bag
continues en route to the aircraft.  This eliminates the need and
associated costs of a secondary conveyor system to hold the bags
while Level 2 inspection is taking place.  These costs can be a
significant portion of the total cost of purchase and installation of
a multi-level integrated explosives detection approach.  The baggage
handling systems in the new airports in Malaysia and Hong Kong and
the new Terminal One at JFK International Airport in New York were
designed to capitalize on the VIS-M's Matrixing capability by
interconnecting several of the Company's VIS-M systems with multiple
workstations to achieve 100% checked baggage screening.  Several
other new airports or terminals are being designed to utilize
networked screening systems.

     The Company has begun commercial production of its newest system
for screening checked baggage, the Model MVT.  This system utilizes a
revolutionary approach to dual energy X-ray enabling improved
explosive detection while preserving the high-speed inspection
necessary to screen large amounts of baggage.  This approach gathers
significantly more data than our current generation of systems by
obtaining three different views of each bag.  This multi-view
tomography (MVT) technique allows better measurements of both
effective atomic number and density of each item inside a suitcase
than single view dual energy X-ray systems.

     In addition to its performance characteristics, MVT has several
other features that the Company believes will make it appealing to
potential customers.  The MVT has similar dimensions to the Model VIS
and Model VDS can easily be integrated into baggage handling lines.
For those customers currently utilizing a Vivid system, installing
MVT is a "drop in" upgrade.  The existing Vivid system can be removed
and the MVT installed in the same space with virtually no changes to
the conveyor belts entering and exiting the system.  MVT also will
communicate with the airport's baggage handling control system the
same way as our current equipment.  Additionally, MVT is film safe
meaning that the X-ray dosage is below the threshold for damaging
film unlike competing CT technologies that utilize a significantly
higher dose of X-ray, resulting in systems that damage film.  The
Company believes that this feature is important to the airlines that
want to avoid installing screening equipment that could result in
passenger complaints.

     Freestanding Models.  The Company's freestanding checked baggage
explosives detection systems are intended to be installed in an
airport terminal, such as in front of airline check-in counters or in
a baggage handling hall.  The H-1 inspects bags in the upright
position, as they tend to be carried by a passenger.  The VDS series
of systems, which can be used as freestanding systems, inspect
baggage lying flat as they are transported on a conveyor belt.

     In 1996, the Company introduced a modified version of the
operator-attended VDS system to serve as a Level 3 inspection system.
Since less than 1% of the bags reach Level 3, additional time is
available for bag inspection.  This version, the VDS-II, combines the
Company's SDE capability with a high-resolution image to enhance
detection capability.  The system is a low cost alternative to CT
scanners for Level 3 inspection.  It is also faster and less labor
intensive than trace detection systems.  This system can be
integrated into a baggage handling system or used as a freestanding
system in a baggage handling hall or terminal.

     In 1996, the Company also introduced a modified version of the
VDS-II to serve as an inspection system for the inspection of baggage
that exceeds the maximum dimensions that can be accommodated by
standard baggage handling conveyor lines.  The system can be
integrated into a baggage handling system or used as a freestanding
system in a baggage hall or terminal.

     Carry-on Model.  The Company offers its Model APS system to
inspect carry-on baggage, hand baggage and parcels for explosives or
contraband material.  The Model APS is similar in configuration to
conventional X-ray systems used to screen for concealed weapons
currently installed in airports and government and private
facilities.  While an operator is required to inspect each bag for
weapons, the Model APS automatically alerts the operator to the
presence of suspect explosive materials.  The Model APS incorporates
an advanced proprietary operator interface that allows the operator
to view the contents of a bag using various imaging modes and
magnifications to determine whether the bag should be cleared or
rejected for further inspection.

     The Company developed the APS system with Gilardoni, S.p.A.
("Gilardoni"), a manufacturer of conventional X-ray weapons screening
systems and X-ray based equipment for the medical field.  The system
combines many of the advanced detection algorithms developed by the
Company for its automated checked baggage explosives detection
systems with an X-ray main frame using conventional dual energy X-ray
technology.  The arrangement with Gilardoni reduced the time-to-
market of the Company's APS carry-on baggage inspection system.  In
March 1998, the Company began full manufacturing of the Model APS at
its U.S. facility, using components purchased from Gilardoni under
the agreement.  Through September 30, 1998 the Company had sold a
total of 30 Model APS to screen carry-on luggage in an airport
environment and examine hand baggage for facility protection.
Examples of customers that have purchased Model APS systems include
Turkey, Billund Airport Denmark, King Khalid International Airport,
Riyadh, Saudi Arabia, Terminal One at JFK International Airport in
New York and the Pentagon.  The General Services Administration has
approved the Model APS for building protection.

Other Products and Applications

     The Company believes that installations of advanced automated
explosives detection systems at airports will accelerate the adoption
of this technology for other security applications, including the
protection of government and private facilities, and the screening of
mail.  The Company is also exploring opportunities with various
governmental authorities and agencies in the United States and
internationally to use its equipment for the detection of illicit
drugs, the illegal export of currency and detection of agricultural
products.  Further, the Company believes that its technology can
expand the traditional role of X-ray technology in process control
applications by providing enhanced or new value-added functions such
as material analysis, segregation and sorting of materials, and
quality control.   In addition, during fiscal 1998 the Company
entered into an exclusive technology license agreement for the
development of complimentary explosive detection technology.  Under
the agreement, the Company paid $1,250,000 for the exclusive right to
manufacture, use or sell the licensed technology for a three-year
period, with an option to extend the exclusive rights.   See "Risk
Factors - Developing Market; Uncertainty of Market Acceptance" and "-
Uncertainty of Product Development."

Products under Development

     The Company's product development efforts are focused on
developing new products for the explosives and contraband detection
system market and further enhancing the functionality, reliability
and performance of its existing product line.  The Company is
continuing to develop the MVT to meet FAA certification requirements.
This development effort was being funded in part by a $3.4 million
research grant from the FAA awarded in May 1997.  The Company cannot
assure that it will be able to develop a system that will meet FAA
certification requirements on a timely basis, if at all, or that if
developed, the system will be commercially successful.  See "Risk
Factors - Dependence on Government Regulation" and " - Uncertainty of
Product Development."

Marketing and Sales

     The company sells and markets its products through its direct
sales force as well as independent sales representatives and
distributors in certain foreign countries, including Spain, France,
Hong Kong, Japan and Malaysia.  As of September 30, 1998, the Company
had a 12 person marketing and sales staff.  Two members of this staff
are located in the United Kingdom and one in Switzerland.  The
Company also has a director of business development for the United
States based in New Jersey with a primary focus on the non-aviation
applications for the Company's systems.  The remainder of the
marketing and sales staff is headquartered at the Company's offices
in Woburn, Massachusetts.

     In the United States, the Company is working actively with the
FAA, other government agencies, airlines, airport operators and
congressional committees to promote the efficacy and cost-
effectiveness of its products for deployment in United States
airports.  The Company is also working with United States and foreign
governmental agencies to promote its products for non-aviation
applications.  In addition, the Company markets its products through
participation in trade shows, publication of articles and advertising
in trade journals, participation in industry forums and standard
setting organizations, and distribution of sales literature.  The
Company benefits from customer referrals and the use of certain
customer installations as demonstration sites for its systems.  In
fiscal 1996,1997 and 1998, international sales accounted for
approximately 95%, 97%, 78%, respectively, of the Company's revenues.
See "Risk Factors - Reliance on International Sales" and "Note 6 in
Notes to Consolidated Financial Statements."

     The selling process for the Company's products often involves a
team comprised of individuals from sales and marketing, engineering,
operations and senior management.  This team frequently engages in a
multi-level sales effort directed toward a variety of constituents
which may include government regulators, the local airport operator
or authority, systems integrators and airlines.  The Company's sales
effort with certain of its customers has extended over several years.
Potential customers frequently require the Company's products to be
tested against various performance standards and competitive
products.  The Company maintains demonstration units for this purpose
and intends to increase its investment in demonstration units in
order to accelerate the introduction of its products to new
customers.  Delays in anticipated purchase orders by the Company's
customers and potential customers could have a material adverse
effect on the Company's business.  See "Risk Factors - Lengthy Sales
Cycle."

     In 1997, the Company entered into an arrangement with Gilardoni
for the manufacture and sale of the Model APS carry-on baggage
explosives detection system.  Under this arrangement, the Company has
the exclusive right to manufacture and sell this system in the United
States, the United Kingdom, certain other European countries and
Mexico.  In addition, the Company has agreed not to sell any
competitive X-ray-based system within its territory unless
manufactured by Gilardoni or the Company.  The Company intends to
pursue strategic alliances, acquisitions and licenses of
complementary technologies to further enhance its growth.  See "Risk
Factors - Management of Growth."

     In fiscal 1996, 1997 and 1998, sales to BAA accounted for
approximately 79%, 39% and 42%, respectively, of the Company's
revenues.  Additionally, in fiscal 1997 and 1998 Airport Authority
Hong Kong accounted for 19% and 12%, respectively, and Toyo Kanetsu
K.K., the baggage-handling contractor for Malaysia's Kuala Lumpur
International Airport, accounted for 27% and 2%, respectively, of the
Company's revenues.  Revenues from the FAA including $2.7 million in
research and development funding accounted for 16% of the Company's
revenues in fiscal 1998.  See "Risk Factors - Customer
Concentration."

Customer Service and Support

     The Company provides a high level of customer support to assist
in the installation and integration of the Company's products into
its customers' facilities and to assist in maintaining the
reliability of the Company's products once installed.  The Company
offers a number of customer support services, including applications
support, training, system preventative and corrective maintenance,
and upgrades.  The Company generally provides one-year parts warranty
and offers primary and back-up service contracts to its customers.
The Company's customer support staff currently includes six support
engineers at its headquarters in Massachusetts, seven support
engineers operating out of the Company's offices in the United
Kingdom and two support engineers in the Asia-Pacific region.

Regulation

     The explosives detection systems manufactured and marketed by
the Company for use in airports are subject to regulation by the FAA,
corresponding foreign governmental authorities and ICAO, the United
Nations organization for establishing standard practices for the
aviation industry on a worldwide basis.  Sales of the Company's
explosives detection systems for use in airports have been and will
continue to be dependent upon governmental initiatives to require or
support the screening of baggage with advanced explosives detection
systems.  Substantially all of such systems have been installed at
airports in countries in which the applicable governmental or
regulatory authority overseeing the operations of the airport has
mandated such screening.  Such mandates are influenced by many
factors outside of the control of the Company, including political
and budgetary concerns of governments, airlines and airports.  See
"Risk Factors - Dependence on Government Regulation; FAA
Certification; and FAA Appropriations."

     The FAA currently requires all carry-on baggage and
international checked baggage to be inspected by hand search or with
conventional X-ray equipment.  United States airlines operating at
airports outside of the United States are required to meet FAA
security requirements in addition to the requirements of the local
authorities.  The FAA permits the use of the Company's systems by
United States airlines at foreign airports as an alternative to
conventional X-ray equipment.

     Under the Aviation Security Act, the FAA was required to develop
a standard for explosives detection systems and to certify equipment
that met this standard under realistic airport operating conditions.
None of the Company's systems have been certified by the FAA.  A
prototype of the Company's recently introduced MVT was submitted to
the FAA for precertification readiness testing and data collection.
As of the filing date, the MVT had not been through the FAA's
official certification test.  The Company plans to make further
refinements to the system before proceeding to the formal
certification testing.  The Company cannot assure that the MVT or any
other products that may be developed by the Company will ever meet
the FAA or any other United States certification standard.  See "Risk
Factors - Dependence on Government Regulation; FAA Certification; and
FAA Appropriations."

     In response to the crash of TWA Flight 800, President Clinton
formed the Gore Commission to review airline and airport security and
oversee aviation safety.  The Gore Commission released its initial
and final reports in September 1996 and February 1997, respectively,
and in October 1996, the United States enacted the Re-Authorization
Act which included an allocation for the purchase of explosives
detection systems and other advanced security equipment by air
carriers and airport authorities.  The FAA has ordered initial
quantities of the CT-based system, trace detection systems and dual
energy X-ray based systems, including eight systems from the Company.
The deployment of these systems will allow the U.S. airlines, which
are the main users of the equipment, to gain experience with the
various technologies enabling them to determine which systems work
best in busy U.S. airport environments.

     In October 1998, Congress approved and the president signed the
fiscal 1999 federal budget, which includes $100 million for the
purchase and installation of explosive detection systems and other
advanced security equipment.  This level of funding is consistent
with the Gore Commission's recommendation that $100 million be spent
annually for several years to upgrade the nation's aviation security.

     The UK DOT has mandated 100% screening of international checked
baggage in the United Kingdom.  Similarly, the other ECAC member
states have resolved to implement 100% screening of international
checked baggage.  The Company's Level 1, Level 2 and Level 3 systems,
as well as the Company's SDE technology, have been allowed for use by
the UK DOT.  In most other ECAC member states, the Company's systems
either must be tested and approved or procured by governmental
authorities overseeing the operation of airports within the country.
In addition to the United Kingdom, the Company's systems have been
purchased or approved for use in airports in many European countries
including Belgium, France, The Netherlands, Italy, Spain and
Switzerland.

     Governmental authorities overseeing the construction of new
airports in the Asia-Pacific region are defining requirements for the
use of advanced explosives detection systems to achieve 100%
screening of international checked baggage at those airports.  As a
result, the Company's systems are also being evaluated by the
applicable regulatory authorities in countries in the Asia-Pacific
region for purchases at new airports and have been installed for use
at the new airports in Malaysia and Hong Kong.  The Company cannot
assure that its systems will be purchased for installation in any of
the other new airports or terminals under construction or proposed
for construction in that region.

     ICAO has adopted various recommendations and requirements for
screening of checked and carry-on baggage.  Currently, ICAO requires
the screening of all international carry-on bags and recommends the
screening of international checked baggage.  This requirement and
recommendation relates only to the screening of baggage and does not
require any specific technology to be used.  It cannot be assured
that additional countries will mandate the implementation of
effective explosives screening or airline baggage, or that, if
mandated, the Company's systems will meet the certification or other
requirements of the applicable governmental authority.  Even if the
Company's systems meet the applicable requirements, it cannot be
assured that the Company would be able to market its systems
effectively.

Research and Development

     The Company's research and development efforts are focused on
developing new products for the explosives and contraband detection
system market and further enhancing the functionality, reliability
and performance of its existing product line.  The Company's research
and development personnel also are involved in establishing
protocols, monitoring and interpreting and submitting test data to
the FAA and other domestic and foreign regulatory agencies to obtain
the requisite certifications, clearances and approvals for its
products.  During fiscal 1998, the main focus of the Company's
research and development personnel was on the development of the
Model MVT.

     At September 30, 1998, the Company had 46 employees engaged in
research and development and engineering, including 14 employees
engaged in software development.  During fiscal 1996, 1997 and 1998,
the Company's research and development expenses were approximately
$3.5 million, $4.4 million and $5.9 million, respectively.  In
addition, during each of these years certain of the Company's
research and development expenses related to work performed under the
Company's FAA research and development grants were included under
costs of goods sold.

Intellectual Property

     The Company relies upon trade secrets and patents to protect its
technology.  Due to the rapid technological change that characterizes
the explosives detection system industry, the Company believes that
the improvement of existing technology, reliance upon trade secrets
and unpatented proprietary know-how and the development of new
products are generally as important as patent protection in
establishing and maintaining a competitive advantage.  Nevertheless,
the Company has obtained patents and will continue to make efforts to
obtain patents, when available, in connection with its product
development program.  The Company has obtained five patents and has
pending two patent applications in the United States.  In addition,
for certain foreign countries the Company has pending patent
applications that correspond to the subject matter of certain United
States patents and patent applications.  Three of the Company's
United States patents relate to applications of its dual X-ray
technology and the Company's software algorithms used to implement
the Company's screening analysis techniques.  The Company's fourth
patent relates to the Company's operator workstations.  The Company's
fifth patent relates to the Company's SDE technology.  These patents
have expiration dates ranging from 2011 to 2015.  It cannot be
assured that any of the Company's unallowed patent applications will
be granted, that any patent or patent application will provide
significant protection for the Company's products or technology, be
of commercial benefit to the Company, or that its validity will not
be challenged.  Moreover, it cannot be assured that foreign
intellectual property laws will protect the Company's intellectual
property rights.  In the absence of significant patent protection,
the Company may be vulnerable to competitors who attempt to copy or
use the Company's products, processes or technology.  See "Risk
Factors - Limited Protection of Intellectual Property Rights; Patent
Litigation."

     The Company has an exclusive perpetual license to use certain
patents and technology developed by Hologic, Inc. ("Hologic") for the
development, manufacture and sale of X-ray screening security systems
for explosives, drugs, currency and other contraband (subject to
termination by either party for certain defined defaults).  The
Company also has a nonexclusive license to use this technology for
the development, manufacture and sale of X-ray-based products for
process control applications in the food and beverage industries.
Hologic and the Company have also granted to the other a non-
exclusive, royalty-free license to use any unpatented technology
developed by the other in connection with such party's research and
development activities.  In addition, Hologic and the Company have
the right to obtain from the other an exclusive license, on
commercially reasonable terms to be negotiated, for any patented new
developments.  See "Risk Factors - Limited Protection of Intellectual
Property Rights; Patent Litigation."

     The Company also licenses certain other technologies used in its
products, often on an exclusive or semi-exclusive basis, for a
defined field of use.  These licenses involve eight United States
patents and certain foreign patents relating to X-ray and
complimentary technology.  The United States patents have expiration
dates ranging from 2002 to 2007.  The Company's arrangement with
Gilardoni relating to the Company's Model APS automated explosives
detection system for screening of carry-on baggage contains cross
licenses of intellectual property rights associated with each party's
technology incorporated into the system.  This license expires in
1999, subject to certain early termination and extension options.
The Company is currently negotiating an extension to the license with
Gilardoni.  In addition, during fiscal 1998 the Company entered into
an exclusive technology license agreement for the development of
complimentary explosive detection technology.  Under the agreement,
the Company paid $1,250,000 for the exclusive right to manufacture,
use or sell the licensed technology for a three-year period, with an
option to extend the exclusive rights.

     The Company was involved in patent litigation with EG&G
Astrophysics Research Corporation ("EG&G"), in which each party
claimed that the other was infringing certain patents held by the
other.  On November 6, 1996, the Company and EG&G signed a settlement
agreement pursuant to which, among other things, each party agreed
not to sue the other for patent infringement for nonmedical uses of X-
ray technology covered by each other's existing patents or by patent
applications which claim priority from such patents or, for products
existing as of September 12, 1996, covered by patents that may be
issued pursuant to existing patent applications.  As a result, each
party will have broad rights to use the other's existing X-ray
technology for an unlimited period of time.  It cannot be assured
that EG&G will not use the Company's technology in a manner that
would materially and adversely affect the Company's business, results
of operations and financial condition.

     The Company is also involved in certain patent litigation with
American Science and Engineering, Inc. ("AS&E"), whereby the Company
was seeking a declaratory judgement that it is not infringing any
AS&E patent.  In connection with this litigation, AS&E filed a
counterclaim alleging that the Company is infringing one or more of
eight AS&E patents.  In October 1996, the court dismissed AS&E's
infringement counterclaims, but allowed AS&E to raise more specific
infringement counterclaims upon asserting factual support for such
claims.  In December 1996, AS&E filed a motion for leave to file an
amended counterclaim asserting that the Company was violating one
AS&E patent.  The court subsequently dismissed AS&E's motion, but
again allowed AS&E to raise more specific infringement counterclaims
upon AS&E's asserting factual support for such claims.  In February
1997, AS&E filed a further memorandum in support of its motion for
leave to file an amended counterclaim.  In April 1997, the Court
denied AS&E's motion and dismissed its counterclaim without granting
leave to file an amended counterclaim.  In April 1998, AS&E filed a
motion in the Federal Court of Appeals for the First Circuit to
appeal this decision.  This appeal is still pending.  See "Risk
Factors - Limited Protection of Intellectual Property Rights; Patent
Litigation" and "Item 3. Legal Proceedings."

Competition

     The markets for the Company's products are highly competitive.
Certain of the Company's competitors have substantially greater
manufacturing, marketing and financial resources than the Company.
Other major corporations have announced their intention to enter the
security screening market.  Competitors may develop superior products
or products of similar quality for sale at the same or lower prices.
Moreover, the Company cannot assure that its products will not be
rendered obsolete by new industry standards or changing technology.
It cannot be assured that the Company will be able to compete
successfully with existing or new competitors.  See "Risk Factors -
Rapid Technological Change."

     While certain of the Company's competitors currently market
automated checked baggage explosives detection products that use dual
energy X-ray technology, the Company believes that it is able to
compete favorably with these products based upon the overall cost
effectiveness of the Company's systems as measured by a combination
of factors including effective automated explosives detection,
throughput, low cost of operation, installation and integration,
price, reliability, and their proven operation in a variety of
airports.

     The Company's systems also compete with systems employing other
technologies including CT scanner technology and trace detection
technology.  A product based upon CT scanner technology currently
detects a wider range of explosives than does the Company's systems.
In 1994, the FAA first certified this CT-based system and a new model
was certified in April 1998.  These systems operate at a
significantly lower throughput rate and significantly higher expense
than the Company's systems.  In November 1998 the FAA certified a new
CT-based system developed by another company.  This certification
will not apply to the commercial production model of this system,
which is still under development.  The Company believes that the CT
systems also are more expensive and operate at a significantly lower
throughput rate compared to the Company's systems.  Additionally, the
two newer systems have not been tested over extended periods of time
in actual airport operating conditions.  None of the Company's
products have been certified by the FAA.  Products based upon trace
detection technology have throughput rates lower than those based on
dual energy X-ray or CT technology and generally have been installed
as Level 3 systems.  See "Risk Factors - Dependence on Government
Regulation; FAA Certification; and FAA Appropriations."

     The Company's Model APS system, which is intended to detect
explosives in carry-on bags and personal effects at airports and
other installations, has recently been evaluated by various
government agencies.  This system competes against conventional X-ray
systems, which are lower in price, as well as advanced explosives
detection systems being adapted by the Company's competitors for this
use.  The Model APS system competes on the basis of price, detection
capabilities, ease of use, expense of operation and reliability.

Manufacturing

     The Company's manufacturing operations consist primarily of
assembly, test, burn-in and quality control.  The Company has adopted
stringent quality assurance procedures that include standard design
practices, component selection procedures, vendor control procedures,
and comprehensive reliability testing and analysis.  As a result of
these efforts, the Company has received ISO 9001 certification.  The
Company's manufacturing facility is currently producing approximately
eight of the Company's checked baggage systems and five hand baggage
systems per month and has the capability to accommodate production of
over 20 checked baggage systems and 15 hand baggage systems per
month.   In September 1998, the Company began production of its next
generation system MVT.  In anticipation of future growth, the Company
entered into a five-year lease agreement for additional space of
approximately 18,500 square feet in a building adjacent to its
existing location.  Should market conditions warrant, the Company may
choose to establish overseas manufacturing operations.

     The Company purchases a major portion of the parts and
peripheral components for its products, and manufactures certain
subsystems, such as the high voltage power supply, from raw
materials.  Most parts and materials are readily available from
several supply sources.  In 1997, the Company entered into a joint
marketing and royalty agreement with Gilardoni for the Model APS
system.  In March 1998, the Company began full manufacturing of the
Model APS at its U.S. facility, using components purchased from
Gilardoni per the agreement.  Under the current arrangement Gilardoni
is the sole source for certain components to be manufactured with the
Model APS.  There can be no assurance that Gilardoni will supply
these components in a cost effective or timely manner.  The failure
of Gilardoni to provide acceptable quality and timely components at
an acceptable price, or an interruption of supplies from such a
supplier as a result of fire, nature calamity, strike or other
significant event could materially and adversely affect the Company's
business, financial condition and results of operations.  The Company
is currently in discussions with Gilardoni to allow the Company a
second source for these components.

Backlog

     Backlog for the Company's products as of September 30, 1997 and
1998 totaled approximately $15 million and $4 million, respectively.
Backlog consists of purchase orders for which a customer has
scheduled delivery within the next twelve months.  In certain
circumstances, orders included in backlog may be canceled or
rescheduled by customers without significant penalty.  Backlog as of
any particular date should not be relied upon as indicative of the
Company's revenues for any future period.

Employees

     As of September 30, 1998, the Company had 125 full-time
employees, including 35 in manufacturing operations and quality
assurance, 46 in research, development and engineering, 27 in
marketing, sales and customer support, and 17 in finance and
administration and information systems.  None of the Company's
employees is represented by a union.  The Company considers its
employee relations to be good.

Executive Officers of the Registrant

   The  executive  officers of the Company  and  their  ages  are  as
follows:

Name                    Age               Position
S. David Ellenbogen      60  Chairman of the Board and Chief
                             Executive Officer
                              
Dr. Jay A. Stein         56  Senior Vice President, Technical
                             Director and Director
                              
William J. Frain         32  Chief Financial Officer and Treasurer
                              
James J. Aldo            47  Vice President of Marketing and Sales
                              
Daniel J. Silva          46  Vice President of Operations
                              

  S. David Ellenbogen, a co-founder of the Company, has served as its
Chief Executive Officer and a director since its organization in June
1989  and served as its President from June 1989 until February 1997.
Mr.  Ellenbogen  was  also  a co-founder  of  Hologic,  a  developer,
manufacturer and seller of X-ray and other bone densitometers, served
as  its  President from October 1985 until May 1994, and is currently
its  Chairman  of  the Board and Chief Executive Officer.   Prior  to
founding Hologic, Mr. Ellenbogen served as President, Treasurer and a
director  of Diagnostic Technology, Inc. ("DTI"), which he co-founded
in   1981.   DTI,  which  developed  an  X-ray  product  for  digital
angiography,   was   acquired   in  1982   by   Advanced   Technology
Laboratories,  Inc.  ("ATL"),  a wholly-owned  subsidiary  of  Squibb
Corporation.  Mr.  Ellenbogen was involved in the management  of  the
digital  angiography group of ATL from 1982 to 1985.  Mr.  Ellenbogen
is employed by Hologic and performs part-time management services for
the  Company  pursuant to a management agreement between the  Company
and  Hologic.   See  "Item  13.  Certain  Relationships  and  Related
Transactions."

   Dr.  Jay  A.  Stein, a co-founder of the Company and Hologic,  has
served  as  Senior Vice President, Technical Director and a  director
for  both  companies since their organization.  Dr. Stein  co-founded
DTI  with  Mr.  Ellenbogen  in 1981, served  as  Vice  President  and
Technical  Director of DTI and was Technical Director of the  digital
angiography  group  of its successor, ATL, from 1982  to  1985.   Dr.
Stein received a Ph.D. in Physics from The Massachusetts Institute of
Technology. He is the principal author of fifteen patents  pertaining
to  X-ray  technology.  Dr. Stein is employed by Hologic and performs
part-time  management  services  for  the  Company  pursuant   to   a
management agreement between the Company and Hologic. See  "Item  13.
Certain Relationships and Related Transactions."

   William  J.  Frain, a Certified Public Accountant, has  served  as
Chief  Financial Officer and Treasurer since October 1996.  Prior  to
that,  Mr. Frain served as Controller from August 1993 until  October
1996.   Prior to joining the Company, Mr. Frain served as an  auditor
at Arthur Andersen LLP from September 1988 to August 1993.

   James J. Aldo has served as Vice President of Marketing and  Sales
since  July 1993. Prior to that, Mr. Aldo served as Director of Sales
and  Marketing  since  joining the Company in  July  1989.  Prior  to
joining  the  Company, Mr. Aldo held positions in  marketing,  sales,
engineering  and  field  service management at  AS&E  and  served  as
Eastern  Regional Manager at Tegal, Inc., a subsidiary  of  Motorola,
Inc.,  a  manufacturer  of capital equipment  for  the  semiconductor
industry.

   Daniel  J. Silva has served as Vice President of Operations  since
April 1994. Prior to that, Mr. Silva served as the Company's Director
of Operations from June 1992 to April 1994. Mr. Silva was hired as an
Operations  Manager in June 1991. Prior to joining the  Company,  Mr.
Silva held positions in manufacturing, project management and program
management at AS&E.

Significant Employees

   Certain  key  employees of the Company who are not also  executive
officers or directors are as follows:

     Name          Age         Position
                                   
Kristoph D. Krug    45    Chief Technical Officer
                          
Jeremy M. Attree    39    Director of Operations, Europe

   Kristoph  D.  Krug joined the Company in July 1989  as  a  Project
Engineer,  was  promoted  to  Director of  Research  and  Development
Engineering  in  1992 and became Chief Technical Officer  in  January
1997.  Mr. Krug is the author of two of the Company's patents for  X-
ray screening. Prior to joining the Company, Mr. Krug was Engineering
Manager   at  Teradyne,  Inc.,  a  manufacturer  of  automated   test
equipment.

  Jeremy M. Attree has served as Director of Operations, Europe since
joining  the Company in October 1993. From September 1991 to  October
1993, Mr. Attree served as Marketing Manager for EA Technology Ltd, a
primary  research and development center for the electricity industry
in  the  United Kingdom. Prior to joining EA Technology,  Mr.  Attree
served as Marketing Director and Development Manager for Schlumberger
Industries, Security Division, where he was engaged primarily in  the
development of new products in the airport security field.

Shareholder Rights Plan

     On October 13, 1998, the Board of Directors of Vivid
Technologies, Inc. (the "Company") declared a dividend of one
preferred share purchase right (a "Right") for each outstanding share
of common stock, par value $0.01 per share (the "Common Shares") on
October 27, 1998 (the "Record Date") to the stockholders of record on
that date.  Each Right entitles the registered holder to purchase
from the Company one one-thousandth of a share of Series A Junior
Participating Preferred Stock, par value $0.01 per share (the
"Preferred Shares"), of the Company, at a price of $60.00 per one one-
thousandth of a Preferred Share (the "Purchase Price"), subject to
adjustment.  The description and terms of the Rights are set forth in
a Rights Agreement (the "Rights Agreement") between the Company and
American Stock Transfer & Trust Company, as Rights Agent (the "Rights
Agent").

     Subject to certain limited exceptions, until the earlier to
occur of (i) 10 days following a public announcement that a person or
group of affiliated or associated persons (an "Acquiring Person") has
acquired beneficial ownership of 15% or more of the outstanding
Common Shares, or (ii) 10 business days (or such later date as may be
determined by action of the Board of Directors prior to such time as
any Person becomes an Acquiring Person) following the commencement
of, or announcement of an intention to make, a tender offer or
exchange offer the consummation of which would result in the
beneficial ownership by a person or group of 15% or more of such
outstanding Common Shares (the earlier of such dates being called the
"Distribution Date"), the Rights will be evidenced, with respect to
any of the Common Share certificates outstanding as of the Record
Date, by such Common Share certificate with a copy of the Summary of
Rights attached thereto.

     The Agreement provides that, until the Distribution Date, the
Rights will be transferred with and only with the Common Shares.
Until the Distribution Date (or earlier redemption or expiration of
the Rights), new Common Share certificates issued after the Record
Date or upon transfer or new issuance of Common Shares will contain a
notation incorporating the Agreement by reference.  Until the
Distribution Date (or earlier redemption or expiration of the
Rights), the surrender for transfer of any certificates for Common
Shares outstanding as of the Record Date, even without such notation
or a copy of the Summary of Rights being attached thereto, will also
constitute the transfer of the Rights associated with the Common
Shares represented by such certificate.  As soon as practicable
following the Distribution Date, separate certificates evidencing the
Rights ("Right Certificates") will be mailed to holders of record of
the Common Shares as of the Close of Business on the Distribution
Date and such separate Right Certificates alone will evidence the
Rights.

     The Rights are not exercisable until the Distribution Date.  The
Rights will expire on October 13, 2008 (the "Final Expiration Date"),
unless the Final Expiration Date is extended or unless the Rights are
earlier redeemed by the Company, in each case, as described below.

     The Purchase Price payable, and the number of Preferred Shares
or other securities or property issuable, upon exercise of the Rights
are subject to adjustment from time to time to prevent dilution (i)
in the event of a stock dividend on, or a subdivision, combination or
reclassification of, the Preferred Shares, (ii) upon the grant to
holders of the Preferred Shares of certain rights or warrants to
subscribe for or purchase Preferred Shares at a price, or securities
convertible into Preferred Shares with a conversion price, less than
the then current market price of the Preferred Shares or (iii) upon
the distribution to holders of the Preferred Shares of evidences of
indebtedness or assets (excluding regular periodic cash dividends
paid out of earnings or retained earnings or dividends payable in
Preferred Shares) or of subscription rights or warrants (other than
those referred to above).

     The number of outstanding Rights and the number of one one-
thousandths of a Preferred Share issuable upon exercise of each Right
are also subject to adjustment in the event of a stock split of the
Common Shares or a stock dividend on the Common Shares payable in
Common Shares or subdivisions, consolidations or combinations of the
Common Shares occurring, in any such case, prior to the Distribution
Date.

     Preferred Shares purchasable upon exercise of the Rights will
not be redeemable.  Each Preferred Share will be entitled to a
quarterly dividend payment of 1000 times the dividend declared per
Common Share.  In the event of liquidation, the holders of the
Preferred Shares will be entitled to an aggregate payment of 1000
times the aggregate payment made per Common Share.  Each Preferred
Share will have 1000 votes, voting together with the Common Shares.
In the event of any merger, consolidation or other transaction in
which Common Shares are exchanged, each Preferred Share will be
entitled to receive 1000 times the amount received per Common Share.
These rights are protected by customary antidilution provisions.

     Because of the nature of the Preferred Shares' dividend,
liquidation and voting rights, the value of the one one-thousandth
interest in a Preferred Share purchasable upon exercise of each Right
should approximate the value of one Common Share.

     In the event that any person becomes an Acquiring Person, proper
provision shall be made so that each holder of a Right, other than
Rights beneficially owned by the Acquiring Person and its Affiliates
and Associates (which will thereafter be void), will thereafter have
the right to receive upon exercise that number of Common Shares
having a market value of two times the exercise price of the Right.
In the event that, at any time after a Person becomes an Acquiring
Person, the Company is acquired in a merger or other business
combination transaction or 50% or more of its consolidated assets or
earning power are sold, proper provision will be made so that each
holder of a Right will thereafter have the right to receive, upon the
exercise thereof at the then current exercise price of the Right,
that number of shares of common stock of the acquiring company which
at the time of such transaction will have a market value of two times
the exercise price of the Right.

     If the Company does not have sufficient Common Shares to satisfy
such obligation to issue Common Shares, or if the Board of Directors
so elects, the Company shall deliver upon payment of the exercise
price of a Right an amount of cash or securities equivalent in value
to the Common Shares issuable upon exercise of a Right; provided
that, if the Company fails to meet such obligation within 30 days
following the later of (x) the first occurrence of an event
triggering the right to purchase Common Shares and (y) the date on
which the Company's right to redeem the Rights expires, the Company
must deliver, upon exercise of a Right but without requiring payment
of the exercise price then in effect, Common Shares (to the extent
available) and cash equal in value to the difference between the
value of the Common Shares otherwise issuable upon the exercise of a
Right and the exercise price then in effect.  The Board of Directors
may extend the 30-day period described above for up to an additional
60 days to permit the taking of action that may be necessary to
authorize sufficient additional Common Shares to permit the issuance
of Common Shares upon the exercise in full of the Rights.

     At any time after any Person becomes an Acquiring Person and
prior to the acquisition by any person or group of a majority of the
outstanding Common Shares, the Board of Directors of the Company may
exchange the Rights (other than Rights owned by such person or group
which have become void), in whole or in part, at an exchange ratio of
one Common Share per Right (subject to adjustment).

     With certain exceptions, no adjustment in the Purchase Price
will be required until cumulative adjustments require an adjustment
of at least 1% in such Purchase Price.  No fractional Preferred
Shares will be issued (other than fractions which are integral
multiples of one one-thousandth of a Preferred Share, which may, at
the election of the Company, be evidenced by depository receipts) and
in lieu thereof, an adjustment in cash will be made based on the
market price of the Preferred Shares on the last trading day prior to
the date of exercise.

     At any time prior to the time any Person becomes an Acquiring
Person, the Board of Directors of the Company may redeem the Rights
in whole, but not in part, at a price of $0.001 per Right (the
"Redemption Price").  The redemption of the Rights may be made
effective at such time, on such basis and with such conditions as the
Board of Directors in its sole discretion may establish.  Immediately
upon any redemption of the Rights, the right to exercise the Rights
will terminate and the only right of the holders of Rights will be to
receive the Redemption Price.

     The terms of the Rights may be amended by the Board of Directors
of the Company without the consent of the holders of the Rights,
except that from and after such time as any person becomes an
Acquiring Person no such amendment may adversely affect the interests
of the holders of the Rights (other than the Acquiring Person and its
Affiliates and Associates).

     Until a Right is exercised, the holder thereof, as such, will
have no rights as a stockholder of the Company, including, without
limitation, the right to vote or to receive dividends.


Item 2. Properties

     The Company leases its administrative headquarters and
manufacturing facility located in Woburn, Massachusetts.  The
facility consists of approximately 43,000 square feet, including
21,000 square feet dedicated to the Company's manufacturing
operations.  In July 1998, the Company entered into a five-year lease
agreement for additional space of approximately 18,500 square feet in
a building adjacent to its existing location in Woburn,
Massachusetts.  Approximately 10,000 square feet of this new facility
will be used for manufacturing.  The Company also leases 3,600 square
feet of office and manufacturing space in San Diego, California for a
research and development facility.  The Company also has two offices
in the United Kingdom, leasing approximately 1,000 square feet of
space for sales and service.  In addition, the Company has sales
offices located in Moudon, Switzerland and New Jersey, USA and a
sales and customer support office in Kuala Lumpur, Malaysia.  The
Company believes that its facilities will be adequate for its needs
for the foreseeable future and that suitable additional space will be
available at commercially reasonable prices as needed.  Should market
conditions warrant, the Company may expand its presence in Europe and
the Asia-Pacific region by establishing a manufacturing operation or
expanding its sales and support offices in one or more of those
regions.


Item 3.  Legal Proceedings

     In May 1996, the Company commenced an action in the United
States District Court for the District of Massachusetts against AS&E
seeking a declaration that the Company does not infringe AS&E patents
related to back scattered X-rays.  This followed AS&E's allegations
of infringement to third parties.  No discovery has been taken to
date.  Following a court decision in July 1997 construing the claims
of the AS&E patent, which decision the Company considers favorable,
in September 1997 the Company filed a motion for summary judgment of
non-infringement.  AS&E has not yet filed its papers in opposition to
the Company's motion but is seeking discovery.  If granted, the
Company's motion will resolve all issues remaining in the case in
favor of the Company.  Earlier, in April 1997, the Court dismissed
AS&E's proposed counterclaim seeking to allege patent infringement,
so that the only remaining issue in the case is the Company's request
for declaration of non-infringement of two claims of a single AS&E
patent.  In April 1998, AS&E filed a motion in the Federal Court of
Appeals for the First Circuit to appeal this decision, and the appeal
is still pending.


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

None.


                               Part II

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

Market Information - The Company's Common Stock is quoted on the
Nasdaq National Market under the symbol "VVID."  The following table
sets forth the quarterly high and low sales prices per share of
Common Stock since the Company's initial public offering on December
11, 1996, as reported by the Nasdaq National Market.

Fiscal year Ended September 30, 1998    High      Low
First Quarter                           16 1/2    10 3/8
Second Quarter                          16 3/8    12
Third Quarter                           15 3/4    10 1/2
Fourth Quarter                          12        6 7/8

Fiscal Year Ended September 30, 1997    High      Low
First Quarter                           12 3/4    10
Second Quarter                          24 1/2    11 7/8
Third Quarter                           19 3/4    13 1/4
Fourth Quarter                          18 3/8    14 1/4

Number of Holders - As of December 14, 1998, there were approximately
146 holders of record of the Company's Common Stock, including
multiple beneficial holders at depositaries, banks and brokers listed
as a single holder in the street name of each respective depositary,
bank or broker.

Dividend Policy - The Company has never declared or paid cash
dividends on its capital stock and does not plan to pay any cash
dividends in the foreseeable future.  The Company's current policy is
to retain all of its earnings to finance future growth.  The
Company's bank line of credit prohibits the payment of cash dividends
without prior bank approval.

Recent Sales of Unregistered Securities - None

Use of Proceeds of Initial Public Offering -On December 10, 1996, the
Securities and Exchange Commission declared effective the Company's
Registration Statement on Form S-1, Commission file number 333-14311,
relating to the initial public offering of the Company's Common
Stock, $.01 par value.  The offering commenced on December 11, 1996
and all shares covered by the Registration Statement were sold.  The
managing underwriters for the offering were Lehman Brothers Inc.,
Cowen & Company and Needham & Company.  The following sets forth
certain information regarding the offering and the Companys'
application of the net proceeds therefrom through September 30, 1998:

                INFORMATION RELATING TO THE OFFERING

Number of shares registered                     2,300,000
Number of shares sold by the Company            2,300,000

Aggregate price of the offering amount 
registered and sold                           $27,600,000
          Offering Expenses:
               Underwriting discounts 
                 and commissions               $1,932,000
               Finders' fees                           --
               Expenses paid to or for 
                 underwriters                          --
               Other expenses                    $845,000
                    Total expenses             $2,777,000 (1)
          Net offering proceeds               $24,823,000
          -------------------------
            (1)    No such expenses were paid directly
            or indirectly to directors, officers,
            general partners of the Company or their
            associates; to persons owning ten percent
            or more of any class of equity securities
            of the Company, or to affiliates of the
            Company.
                           
                           USE OF PROCEEDS

                Category                         Amount
          Construction of plant, building 
            and facilities                      $63,300
          Purchase and installation of 
            machinery and equipment            $800,000
          Purchase of real estate                    --
          Acquisition of technology/license  $1,750,000
          Repayment of indebtedness                  --
          Redemption of redeemable 
            preferred stock (1)              $5,780,650
          Working capital                    $6,021,841
          Temporary investments, net        $10,407,209
               Notes, drafts, bills of 
               exchange or bankers'
               acceptances which mature not 
               later than one year from 
               the date of issuance
          Long-term investments                      __
               Investment-grade commercial 
               paper, with an average
               maturity period of 15 months
                    Total investments       $10,407,209
                    Total                   $24,823,000
          -----------------------
            (1) Of this amount, approximately $900,000 was paid to Beta
            Partners Limited Partnership.  Frank Kenny, a director of the
            Company, is a general partner of this partnership.  No other
            proceeds of the offering were paid directly or indirectly to
            directors, officers, general partners of the Company or their
            associates; to persons owning ten percent or more of any class
            of equity securities of the Company; or to affiliates of the
            Company.


Item 6.  Selected Financial Data

The following table contains certain selected consolidated financial
data of the Company and is qualified in its entirety by the more
detailed Consolidated Financial Statements included herein.  This
data should be read in conjunction with "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements appearing
elsewhere herein.
                                  Year ended September 30,
                            1994      1995     1996      1997     1998
                              (in thousands, except per share data)

Consolidated Statement of Operations Data:
Revenues                 $13,801   $14,437  $15,578   $31,702  $38,718
Cost of revenues           6,762     6,129    6,899    13,203   16,361
  Gross margin             7,039     8,308    8,679    18,499   22,357

Operating expenses:
  Research and development 2,296     3,653    3,462     4,390    5,859
  Selling and marketing      716     1,077    1,395     3,556    4,335
  General and administrative 916     1,120    1,515     2,929    3,952
  Litigation expenses        199       309    1,150       427      220
     Total operating 
     expenses              4,127     6,159    7,522    11,302   14,366

Income from operations     2,912     2,149    1,157     7,197    7,991
Interest and other 
 income (expense), net        (2)      (45)       8       862    1,477

Income before provision 
 for income taxes          2,910     2,104    1,165     8,059    9,468
Provision for income taxes   100        90       --     2,193    2,838

  Net income             $ 2,810   $ 2,014  $ 1,165   $ 5,866  $ 6,630

Net income per share
     Basic                $ 1.74    $ 1.21   $ 0.69    $ 0.78   $ 0.68
     Diluted              $ 0.40    $ 0.28   $ 0.15    $ 0.60   $ 0.65

Weighted average number of shares outstanding
     Basic                 1,615     1,663    1,682     7,548    9,685
     Diluted               7,050     7,127    7,869     9,838   10,251


(Dollars in thousands)
                                       September 30,
                            1994      1995     1996      1997     1998
Consolidated Balance Sheet Data:
Working capital           $2,054    $3,968  $(1,037)  $29,297  $36,329
Total assets               6,365     7,740   11,963    37,457   45,924
Redeemable preferred stock,
  including current 
  portion                  5,781     5,781    5,781        --       --
Stockholders' equity 
  (deficit)               (3,065)   (1,045)     177    31,711   38,900


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

     The  following  discussion  and  analysis  should  be  read   in
conjunction  with  "Item 1. Business," "Item  6.  Selected  Financial
Data,"  the  Company's  Consolidated Financial Statements  and  Notes
thereto  and  the  information  described  under  the  caption  "Risk
Factors" below.

Overview

   The Company was founded in 1989 to develop, manufacture and market
automated explosives detection systems following the bombing  of  Pan
American   Flight  103  over  Lockerbie,  Scotland.   Following   its
organization,   the   Company  undertook   extensive   research   and
development, introducing its first free standing automated explosives
detection  system,  the  H-1,  in  1991,  and  its  first  integrated
automated  explosives  detection systems for  Level  1  and  Level  2
screening,  the  VIS  and  VDS,  in  1993.   The  Company   commenced
commercial shipments of its VIS and VDS systems in January 1994.   As
of  September  30,  1998, the Company had shipped and  installed  259
checked  baggage systems for use in airports throughout  Europe,  the
Asia/Pacific region, the United States and Canada.  Also, the Company
shipped  30  Model  APS,  a freestanding system  to  screen  carry-on
baggage for explosives and weapons for use in airports and protection
of  public, private, and government facilities.  The General Services
Administration  has  approved the Company's Model  APS  for  building
protection.   During fiscal 1998 the Company completed shipments  to,
and  celebrated  the opening of the new airports  in  Hong  Kong  and
Malaysia.  These two airports are the first in Asia to implement 100%
screening  for explosives utilizing a total of 52 Vivid systems.   In
addition,  JFK  Terminal One opened in May 1998  deploying  13  Vivid
systems  (7  APS  and 6 checked luggage systems)  and  is  the  first
terminal  in  the  United  States to automatically  inspect  100%  of
passenger baggage for explosives.

   The  Company's  sales  are primarily to owners  and  operators  of
airports,  including foreign governments and regulatory  authorities,
and  other government agencies and departments, specifically for  the
purchase  of  non-aviation  equipment.  The  Company's  revenues  are
derived  primarily from product sales. The Company recognizes revenue
from  product sales upon shipment to the customer, provided  that  no
significant Company obligations remain outstanding and collection  of
the related receivable is deemed probable by management.  The Company
accrues   for  anticipated  warranty  and  installation  costs   upon
shipment.   The  Company's revenues also include government  research
and  development grants and revenues from service, the sale of  spare
parts and training, which have comprised less than 10% of revenues in
the  periods  presented.  The Company recognizes revenues  under  its
development  grants  as  services are rendered.   In  May  1997,  the
Company  received a $3.5 million research and development grant  from
the  FAA to fund, in part, the development of a cost effective,  high
speed  explosive  detection system, based upon the Company's  current
proprietary  technology, that is intended to meet  FAA  certification
requirements.   The Company completed work under this  grant  in  the
first  quarter of fiscal 1999.  In fiscal 1996, 1997,  and  1998  the
Company  recognized  $0.7  million, $0.8 million,  and  $2.7  million
respectively, in development revenue from FAA grants.

   The  Company's  cost of revenues includes a royalty  payable  with
respect  to product sales and other revenues derived from the license
with  Hologic.   Under  the terms of this exclusive  agreement,  this
royalty  was  reduced  from 5% to 3% of revenues  derived  from  such
license  in  January 1997 upon the Company reaching  $50  million  in
cumulative  revenues  subject  to the exclusive  license.   Upon  the
Company reaching $200 million of cumulative revenues subject to  this
exclusive  license, the royalty will be eliminated entirely.   As  of
September  30,  1998,  the  Company had  reached  approximately  $118
million  in  cumulative revenues.  See "Item 1. Business-Intellectual
Property"   and   "Item  13.   Certain  Relationships   and   Related
Transactions."

   In  fiscal  1996,  1997  and  1998, sales  to  BAA  accounted  for
approximately  79%,  39%  and  42%, respectively,  of  the  Company's
revenues.   Additionally, in fiscal 1997 and 1998  Airport  Authority
Hong  Kong  and  accounted for 19% and 12%,  respectively,  and  Toyo
Kanetsu  K.K.,  the baggage-handling contractor for Malaysia's  Kuala
Lumpur International Airport, accounted for 27% and 2%, respectively,
of the Company's revenues. The Company expects that its revenues from
these  customers will decrease and will become increasingly dependent
upon  sales  of  upgrades, replacement equipment and  services.   The
failure  of  the Company to obtain orders from customers  other  than
these customers would have a material adverse effect on the Company's
business,  results of operations and financial condition.  See  "Risk
Factors-Customer  Concentration."  Revenues from  the  FAA  including
$2.7 million in research and development funding accounted for 16% of
the Company's revenues in fiscal 1998.

   Substantially all of the Company's revenues have been generated by
sales  to customers outside the United States.  The Company's foreign
sales  have occurred principally in the United Kingdom, other Western
European  countries and more recently in the Asia/Pacific region  and
the  Middle  East.   In fiscal 1998, the Company sold,  shipped,  and
installed  80  checked baggage systems and 28 hand  baggage  systems,
worldwide.   The Company has sales and service offices in the  United
Kingdom  and  Malaysia  to  support  its  European  and  Asia/Pacific
operations, respectively, and has expanded its presence in Europe and
the  Middle East.  The Company expects international sales to  remain
an important component of its business.

  The  Company's  export  sales generally have  been  denominated  in
United States dollars.  During fiscal 1997 and 1998 approximately 25%
and 20%, respectively, of the Company's revenues were denominated  in
foreign  currencies.  The Company on occasion has hedged its  foreign
currency exposure by entering into forward foreign exchange contracts
to hedge against foreign currency fluctuations.  It cannot be assured
that these hedging efforts will be successful. At September 30, 1998,
the  Company had no exchange contracts.  Gains and losses on  forward
foreign  exchange commitments are deferred and recognized in  revenue
in  the  same period as the hedged transactions.  The net gain (loss)
was  not  material  in  1997 or 1998.  See "Risk Factors-Reliance  on
International Sales."

Results of Operations

   For  the  periods indicated, the following table  sets  forth  the
percentage  of revenues represented by the respective line  items  in
the Company's consolidated statement of operations:

                                   Year Ended
                                  September 30,
                               1996        1997        1998
Revenues                       100%        100%        100% 
Cost of revenues                44          42          42
  Gross margin                  56          58          58 
Operating expenses:                              
  Research and development      22          14          15 
  Selling and marketing          9          11          11 
  General and administrative    10           9          10 
  Litigation expenses            8           1           1
     Total operating        
       expenses                 49          35          37 
                                              
Income from operations           7          23          21 
Interest and other income, net  --           3           3
Income before income taxes       7          26          24 
Provision for income taxes      --           7           7
  Net income                     7%         19%         17% 
                                                                     
Fiscal Year Ended September 30, 1998 Compared to Fiscal Year Ended
September 30, 1997

  Revenues.  Revenues increased by approximately 22% to $38.7 million
in  fiscal 1998, from $31.7 million in fiscal 1997.  This increase in
revenues primarily was the result of an increase in product sales  of
checked baggage systems and the newly introduced hand baggage system.
The increase in product sales was primarily attributable to the total
number  of  product  shipments to Europe, the Middle  East,  and  the
United States, including installations at JFK Terminal One, partially
offset  by  slightly lower average selling prices  of  the  Company's
products  and  a  change  in product mix.  During  fiscal  1998,  the
Company  shipped and installed 80 checked baggage units and  28  hand
baggage  units  compared  to 76 units and 2 units,  respectively,  in
fiscal  1997.  The Company also recognized approximately $2.7 million
of  revenue  under a FAA research grant, compared to $0.8 million  in
fiscal  1997 under the same grant.  For the fourth quarter of  fiscal
1998  revenues  decreased by approximately 18% to $8.8  million  when
compared to $10.7 million for the third quarter of fiscal 1998.   The
decrease  was  primarily related to the Company's transition  to  the
next  generation  system, MVT, and delays in  purchase  decisions  by
potential Asian customers.

   Gross Margin.  Gross margin was 58% of revenues in fiscal 1998 and
fiscal 1997.  The increase in unit sales, revenue associated with the
Company's  FAA  development  grant, service  contracts  and  improved
manufacturing efficiencies, which increased margins, were  offset  by
lower average selling prices and initial sales of the Company's  hand
baggage  unit  which  had lower margins than  the  Company's  checked
baggage units.

   Research  and  Development  Expenses.   Research  and  development
expenses  increased  by approximately 33% to  $5.9  million  (15%  of
revenues)  in  fiscal  1998 from $4.4 million (14%  of  revenues)  in
fiscal  1997.  The increase in research and development  expenses  in
fiscal  1998  was  primarily  due  to  the  addition  of  engineering
personnel and outside consultants working on the development  of  new
products,  mainly  the development of a second generation  explosives
detection  system  in  an  effort to  reach  FAA  certification,  and
enhancements  to  existing products, including  enhancements  to  the
Model  APS  system  for  carry-on baggage  and  the  VIS-M.   Certain
expenses  in  connection with the development of the  Company's  next
generation  system  have  been included in costs  of  goods  sold  in
connection with the most recent FAA research and development grant.

   Selling  and  Marketing Expenses.  Selling and marketing  expenses
increased  approximately 22% to $4.3 million  (11%  of  revenues)  in
fiscal  1998 from $3.6 million (11% of revenues) in fiscal 1997.  The
increase  in selling and marketing expenses in fiscal 1998  primarily
was  due to additional sales and support personnel as a result of the
expansion  of operations in Europe and the United States,  and  to  a
lesser  extent  an  increase in advertising,  consulting  and  public
relations, trade shows and related travel costs.

   General  and  Administrative Expenses.  General and administrative
expenses  increased  approximately  35%  to  $3.9  million   (10%  of
revenues) in fiscal 1998 from $2.9 million (9% of revenues) in fiscal
1997.  The increase in general and administrative expenses in  fiscal
1998  was  primarily  attributable to an increase  in  personnel  and
related  costs,  patent amortization, and license fees,  as  well  as
additional overhead costs as the headcount for the Company  increased
approximately 14%.

  Litigation Expenses.  The Company incurred $220,000 and $427,000 of
litigation expenses in fiscal 1998 and 1997, respectively,  primarily
in connection with the Company's patent litigation with AS&E and to a
lesser extent EG&G.  See "Item 3.  Legal Proceedings."

   Interest  Income.  The Company recognized net interest  income  of
approximately  $1.3 million in fiscal 1998 compared to  net  interest
income  of $813,000 in fiscal 1997.  The increase in fiscal 1998  was
primarily attributable to higher average cash balances resulting from
the receipt of proceeds from the Company's initial public offering in
fiscal  1997,  and the generation of cash from operations  in  fiscal
1998.

   Provision for Income Taxes.  The Company's effective tax rate  for
fiscal  1998  was 30% compared to 27% in fiscal 1996.  The  Company's
effective  tax  rate in fiscal 1998 was lower than the statutory  tax
rates  primarily due to the use of tax credits and the  tax  benefits
associated   with   the  Company's  foreign  sales  corporation   and
Massachusetts securities corporation.  The increase in the  provision
for  income  taxes  in  fiscal  1998  is  primarily  attributable  to
increased  product  sales  in the United  States,  which  offset  the
benefit from the foreign sales corporation.

   Fiscal Year Ended September 30, 1997 Compared to Fiscal Year Ended
September 30, 1996

   Revenues.   Revenues  increased by  approximately  104%  to  $31.7
million  in  fiscal  1997, from $15.6 million in fiscal  1996.   This
increase  in  revenues primarily was the result  of  an  increase  in
product   sales.   The  increase  in  product  sales  was   primarily
attributable  to the total number of product shipments to  Europe  as
well as the commencement of shipments to Chek Lap Kok Airport in Hong
Kong and shipments to Kuala Lumpur International Airport in Malaysia,
partially  offset  by slightly lower average selling  prices  of  the
Company's  products.   During fiscal 1997, the  Company  shipped  and
installed 76 units compared to 30 units in fiscal 1996.

   Gross  Margin.     Gross margin increased to 58%  of  revenues  in
fiscal 1997 compared to 56% of revenues in fiscal 1996.  The increase
in  gross  margin  in fiscal 1997 was primarily attributable  to  the
decrease, commencing in January 1997, in royalties due to Hologic for
the  exclusive license of certain patents and technology from  5%  to
3%, as well as decreased costs attributable to improved manufacturing
efficiencies  recognized  during  the  year.   These  decreases  were
partially offset by lower average selling prices.

   During the second half of fiscal 1996, the Company's product sales
consisted primarily of sales of the newly introduced VIS-M and VDS-II
as well as SDE upgrades.  During fiscal 1997, the Company was able to
reduce  certain  component  costs  and  achieve  other  manufacturing
efficiencies   in  the  design  of  the  VIS-M  and   VDS-II,   which
substantially offset lower average selling prices. The  Company  also
had   a  significant  increase  in  sales  of  upgrades,  parts   and
maintenance in fiscal 1997.  During the third quarter of fiscal  1997
the  Company  began recognizing revenue under the  $3.5  million  FAA
research  grant.  This grant did not have a material impact on  gross
margins during fiscal 1997.

   Research  and  Development  Expenses.   Research  and  development
expenses  increased  by approximately 27% to  $4.4  million  (14%  of
revenues)  in  fiscal  1997 from $3.5 million (22%  of  revenues)  in
fiscal  1996.  The increase in research and development  expenses  in
fiscal  1997  was  primarily  due  to  the  addition  of  engineering
personnel and outside consultants working on the development  of  new
products   and   enhancements   to   existing   products,   including
enhancements to the Model APS system for carry-on baggage and the VIS-
M  (Matrix configuration).  Certain expenses in connection  with  the
development  of  the  Company's  next  generation  system  have  been
included  in  costs of goods sold in connection with the most  recent
FAA  research  and development grant.  As a percentage  of  revenues,
research  and  development expenses declined  in  the  current  year,
reflecting increased revenues in fiscal 1997.

   Selling  and  Marketing Expenses.  Selling and marketing  expenses
increased  approximately 155% to $3.6 million (11%  of  revenues)  in
fiscal  1997 from $1.4 million (9% of revenues) in fiscal  1996.  The
increase  in selling and marketing expenses in fiscal 1997  primarily
was due to additional sales and support personnel, as a result of the
expansion of operations in Europe and the establishment of operations
in  the  Asia/Pacific  region, the payment of  commissions  to  sales
representatives in the Asia/Pacific region, and to a lesser extent an
increase  in advertising, consulting, trade shows and related  travel
costs.

   General  and  Administrative Expenses.  General and administrative
expenses  increased  approximately  93%  to  $2.9  million   (9%   of
revenues)  in  fiscal  1997 from $1.5 million (10%  of  revenues)  in
fiscal  1996. The increase in general and administrative expenses  in
fiscal  1997  was primarily attributable to an increase in  personnel
and   related  costs  (including  non-recurring  costs   related   to
relocation  fees)  as  well  as  additional  overhead  costs  as  the
headcount for the Company increased approximately 42%.

   Litigation  Expenses.   The  Company incurred  $427,000  and  $1.2
million of litigation expenses in fiscal 1997 and 1996, respectively,
primarily  in  connection with the Company's patent  litigation  with
EG&G and to a lesser extent AS&E.

   Interest  Income.  The Company recognized net interest  income  of
approximately $813,000 in fiscal 1997 compared to net interest income
of  $8,000 in fiscal 1996.  The increase in fiscal 1997 was primarily
attributable  to  higher  average cash balances  resulting  from  the
receipt of proceeds from the Company's initial public offering.

   Provision for Income Taxes.  The Company's effective tax rate  for
fiscal  1997  was  27% compared to no provision for income  taxes  in
fiscal  1996.   The Company's effective tax rate in fiscal  1997  was
lower  than the statutory tax rates primarily due to the use  of  tax
credits  and  the tax benefits associated with the Company's  foreign
sales corporation.  The provision for income taxes in fiscal 1996 was
a  result of the Company's recognition of a deferred tax asset, which
reflected   management's  determination,  in  accordance   with   the
Financial   Accounting  Standards  Board's  Statement  of   Financial
Accounting  Standards ("SFAS") No. 109, that it was more likely  than
not that this deferred tax asset would be utilized.

Liquidity and Capital Resources

   Since inception, the Company has funded its operations and capital
expenditures  through internally generated cash flow,  proceeds  from
sales of securities and the availability of a working capital line of
credit.   At  September 30, 1998, the Company had working capital  of
$36.3 million, including approximately $26.0 million in cash and cash
equivalents and short-term investments. The Company also has  a  $5.0
million  bank  line of credit, which expires in February  1999.   The
Company's bank line of credit bears interest at the bank's prime rate
(8.25%  as  of September 30, 1998).  The line of credit is  unsecured
and contains certain financial and other covenants.  At September 30,
1998,  the  Company  had no amounts outstanding under  this  line  of
credit.   See   "Item 5.  Market for Registrant's Common  Equity  and
Related Stockholder Matters" and "Item 13.  Certain Relationships and
Related Transactions."

   During the fiscal year ended September 30, 1998, the Company's net
cash  provided by operating activities was approximately $8.3 million
and  was  comprised  of  net income adjusted  for  non-cash  expenses
including  depreciation  and amortization totaling  $7.4  million,  a
decrease  of  $2.2 million in accounts receivable and an increase  in
deferred revenue of $1.7 million offset by a $1.7 million increase in
inventories, an $850,000 million increase in other current assets and
a  decrease  of  $724,000  in  accounts  payable.   The  increase  in
inventories  were  primarily attributable to the Company's  increased
product  sales,  the commercial introduction of  the  new  Model  APS
system, and initial production of the Model MVT.

  During the fiscal year ended September 30, 1998, the Company's  net
cash  used  in  investing activities was approximately $4.9  million,
primarily  reflecting the net purchase of approximately $2.8  million
of  short-term  investments.  Cash used in investing activities  also
included  capital  expenditures  for  fiscal  1998  of  approximately
$840,000  and an increase of $1.3 million in other assets related  to
the  licensing of certain technologies.  While the Company  does  not
have  any  significant  commitments  for  capital  expenditures,  the
Company  anticipates that it will continue to purchase  equipment  to
support its anticipated growth.

  During the fiscal year ended September 30, 1998, net cash provided
by financing activities was $558,000, primarily attributable to
approximately $473,000 of proceeds from the exercise of stock options
and $85,000 from the exercise of stock purchase warrants.

   The  Company  does  not  currently have  any  significant  capital
commitments   and  believes  that  existing  sources  of   liquidity,
including  the  net  proceeds of its initial public  offering,  funds
expected to be generated from operations and its line of credit  will
provide  adequate cash to fund the Company's anticipated  operational
and  other  cash  needs  through at least  the  next  twelve  months.
However,  for a brief discussion of the factors that could  adversely
affect  the  Company's financial position and results of  operations,
see "Risk Factors."

Year 2000 Readiness Disclosure

   The  year  2000  issue is the potential for system and  processing
failure  of  date-related data and the result of  computer-controlled
systems  using  two digits rather than four to define the  applicable
year.   For  example,  computer  programs  that  have  time-sensitive
software may recognize a date using "00" as the year 1900 rather than
the   year   2000.    This  could  result  in   system   failure   or
miscalculations  causing disruptions of operations, including,  among
other  things,  a  temporary inability to process transactions,  send
invoices or engage in similar normal business activities.

   The  Company may be affected by year 2000 issues related  to  non-
compliant  information technology ("IT") systems  or  non-IT  systems
operated or sold by the Company or by third parties.  The Company has
substantially completed assessment of its internal IT systems and non-
IT  systems. The Company has tested all products internally  and  has
adopted  a Year 2000 Qualification Test Procedure to ensure that  all
products  operate  properly through the year 2000  and  beyond.    In
addition  to  internal  testing the Company has  received  compliance
certificates  from  the  FAA and BAA confirming  that  the  Company's
existing  products  are year 2000 compliant.  The  Company  has  also
submitted  a  survey to all vendors subject to year 2000  compliance.
In  addition  to  the  survey,  the  Company  has  internally  tested
components  supplied  by  outside  vendors.  The  Company  has   also
performed   an  internal  review  of  in-house  computers,   network,
operating system and financial reporting package confirming year 2000
compliance.   At  this point in its assessment, the  Company  is  not
currently  aware  of  any  year  2000 problems  relating  to  systems
operated  or  sold by the Company that would have a material  adverse
effect  on the Company's business, results of operations or financial
condition.

   Although  the  Company  believes that its systems  are  year  2000
compliant,  the Company utilizes third-party equipment  and  software
that  may  not  be year 2000 compliant.  In addition,  the  Company's
products  and  software  are often sold  to  be  integrated  into  or
interface with third party equipment or software.  Failure of  third-
party  equipment or software to operate properly with regard  to  the
year   2000  and  thereafter  could  require  the  Company  to  incur
unanticipated  expenses to remedy any problems, which  could  have  a
material   adverse  effect  on  the  Company  business,  results   of
operations  and  financial  condition.   The  Company  may  also   be
vulnerable to any failures by its major suppliers, service  providers
and  customers to remedy their own internal IT and non-IT system year
2000  issues  which could, among other things, have  a  material  and
adverse affect on the Company's supplies and orders.  The Company  is
unable  to  estimate  the nature or extent of any  potential  adverse
impact  resulting  from the failure of third  parties,  such  as  its
suppliers,  service  providers and customers, to  achieve  year  2000
compliance.   Moreover,  such  third  parties,  even  if  year   2000
compliant,  could experience difficulties resulting  from  year  2000
issues  that  may  affect  their  suppliers,  service  providers  and
customers.   As  a  result, although the Company does  not  currently
anticipate that it will experience any material shipment delays  from
their  major product suppliers or any material sales delays from  its
major  customers  due to year 2000 issues, these  third  parties  may
experience  year  2000  problems.  Any such  problems  could  have  a
material  adverse  effect  on  the  Company's  business,  results  of
operations and financial condition.

   Other  than its activities described above, the Company  does  not
have  and does not plan to develop a contingency plan to address year
2000  issues.  Should any unanticipated significant year 2000  issues
arise,  the  Company's failure to implement such a  contingency  plan
could  have  a  material  adverse affect on its  business,  financial
condition and results of operations.

   To the extent that the Company does not identify any material non-
compliant IT systems or non-IT systems operated by the Company or  by
third parties, such as the Company's suppliers, service providers and
customers,  the most reasonably likely worst case year 2000  scenario
is  a  systemic failure beyond the control of the Company, such as  a
prolonged  telecommunications or electrical  failure,  or  a  general
disruption in United States or global business activities that  could
result in a significant economic downturn.  The Company believes that
the  primary  business risks, in the event of such failure  or  other
disruption, would include but not be limited to, loss of customers or
orders, increased operating costs, inability to obtain inventory on a
timely  basis,  disruptions in product shipments, or  other  business
interruptions   of  a  material  nature,  as  well   as   claims   of
mismanagement, misrepresentation, or breach of contract, any of which
could  have  a  material  adverse effect on the  Company's  business,
results of operations and financial condition.

Recent Accounting Pronouncements

  In   June   1997,   the  FASB  issued  SFAS  No.   130,   Reporting
Comprehensive  Income.   SFAS  No. 130  requires  disclosure  of  all
components  of  comprehensive income on an annual and interim  basis.
Comprehensive income is defined as the change in equity of a business
enterprise  during a period from transactions and  other  events  and
circumstances  from nonowner sources.  SFAS No. 130 is effective  for
fiscal years beginning after December 15, 1997.

  In  July  1997,  the  FASB issued SFAS No. 131,  Disclosures  About
Segments  of  an Enterprise and Related Information.   SFAS  No.  131
requires  certain  financial  and  supplementary  information  to  be
disclosed on an annual and interim basis for each reportable  segment
of  an  enterprise, as defined.  SFAS No. 131 is effective for fiscal
years  beginning  after  December 15,  1997.   Unless  impracticable,
companies  would  be  required  to  disclose  similar  prior   period
information upon adoption.

  In   March  1998,  the  American  Institute  of  Certified   Public
Accountants   (AICPA)  issued  Statement  of  Position  (SOP)   98-1,
Accounting  for the Costs of Computer Software Developed or  Obtained
for   Internal  Use.   SOP  98-1  requires  computer  software  costs
associated with internal-use software to be charged to operations  as
incurred until certain capitalization criteria are met.  SOP 98-1  is
effective beginning January 1, 1999.  The Company does not expect the
adoption  of  this  statement  to  have  a  material  impact  on  its
consolidated financial position or results of operations.

  In  June  1998,  the  FASB  issued SFAS  No.  133,  Accounting  for
Derivative  Instruments  and  Hedging  Activities.   SFAS   No.   133
establishes   accounting  and  reporting  standards  for   derivative
instruments,  including  certain derivative instruments  embedded  in
other  contracts  (collectively referred to as derivatives)  and  for
hedging  activities.   SFAS  No. 133 is effective  for  fiscal  years
beginning  after  June 15, 1999.  The Company  does  not  expect  the
adoption  of  this  statement  to  have  a  material  impact  on  its
consolidated financial position or results of operations.

Risk Factors

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

  Customer Concentration.     In fiscal 1996, 1997 and 1998, sales to
BAA  accounted  for approximately 79%, 39% and 42%, respectively,  of
the  Company's  revenues.   Additionally, in  fiscal  1997  and  1998
Airport  Authority Hong Kong accounted for 19% and 12%, respectively,
and Toyo Kanetsu K.K., the baggage-handling contractor for Malaysia's
Kuala  Lumpur  International  Airport,  accounted  for  27%  and  2%,
respectively,  of the Company's revenues.  In fiscal  1998,  revenues
from the FAA constituted 16% of the Company's revenues.  The BAA, the
Airport  Authority  Hong  Kong and Toyo Kanetsue  K.K.,  have  either
completed   or   nearly  completed  deployment  of  checked   baggage
explosives  detection  systems at their respective  airports.   As  a
result,  the  Company expects that its revenues from these  customers
will  decrease and will become increasingly dependent upon  sales  of
upgrades, replacement equipment and services.  Revenues from the  FAA
included  $2.7  million  received under a  research  and  development
contract  which the Company substantially completed in  fiscal  1998.
The  inability  of  the  Company to replace the  revenue  from  these
projects  would  have  a  material adverse effect  on  the  Company's
business, results of operations and financial condition.

   Dependence  on Government Regulation; FAA Certification;  and  FAA
Appropriations.    The  Company's sales of its  explosives  detection
systems  for  use  in  airports has been  and  will  continue  to  be
dependent  upon  governmental initiatives to require or  support  the
screening  of  baggage  with advanced explosives  detection  systems.
Substantially all of such systems have been installed at airports  in
countries   in  which  the  applicable  governmental  or   regulatory
authority overseeing the operations of the airport has mandated  such
screening.   Such mandates are influenced by many factors outside  of
the  control  of  the  Company,  including  political  and  budgetary
concerns  of governments, airlines and airports.  The Company  cannot
assure  that additional countries will mandate the implementation  of
effective  explosives  screening of  airline  baggage,  or  that,  if
mandated, the Company's systems will meet the certification or  other
requirements of the applicable governmental authority.

   In  the  United States, the Aviation Security Act of 1990 directed
the  FAA  to develop a standard for explosives detection systems  and
required airports in the United States to deploy systems meeting this
standard  by  1993.   The  standard  adopted  by  the  FAA  is   more
comprehensive  than standards adopted in most other  countries.   The
FAA  first certified a computed tomography ("CT") system in  December
1994.   A  second  CT  based system from the  same  manufacturer  was
certified  in  April 1998.  A third CT-based system was certified  by
the  FAA  in November 1998.  None of the Company's systems have  been
certified  by  the  FAA.   A  prototype  of  the  Company's  recently
introduced   MVT  was  submitted  to  the  FAA  for  precertification
readiness  testing and data collection.  As of the filing  date,  the
MVT  had not been through the FAA's official certification test.  The
Company  plans  to  make further refinements  to  the  system  before
proceeding  to the formal certification testing.  The Company  cannot
assure  that  the MVT or any other products that may be developed  by
the  Company  will  ever  meet the FAA or  any  other  United  States
certification standard.  See "Item 1.  Business-Regulation."

     In October 1996, the United States enacted the Re-Authorization
Act, which included an allocation for the purchase of explosives
detection systems and other advanced security equipment by air
carriers and airport authorities.  Utilizing this allocation, the FAA
has ordered initial quantities of the CT-based system, trace
detection systems and dual energy X-ray based systems, including
eight systems from the Company.   In October 1998, Congress approved
and the president signed the fiscal 1999 budget, which includes $100
million for the purchase and installation of explosive detection
systems and other advanced security equipment.  This level of funding
is consistent with the Gore Commission's recommendation that $100
million be spent annually for several years to upgrade the nation's
aviation security.  However, any additional funding will be subject
to approval in future budgets.  Included in the $100 million for
fiscal 1999 is a recommendation to purchase operator assist X-ray
systems for the screening of carry-on luggage.  The FAA has
informally advised the Company that it expects to allocate these
funds in the beginning of calendar 1999.  The FAA is not required to
allocate any funds to purchase the Company's systems.  In the past,
the FAA's allocation of funds has favored those systems that have
received FAA certification.  As a result, the failure of the Company
to have obtained FAA certification for the MVT by the time all or a
portion of the fiscal 1999 funds are allocated could have an adverse
effect on the number of Company systems that the FAA may order, if
any.  The failure of the Company to obtain significant orders from
the FAA could have a material adverse effect on its business, results
of operations and financial condition.

  Significant Fluctuations and Unpredictability of Operating Results.
Significant  annual  and  quarterly  fluctuations  in  the  Company's
results of operations may be caused by several factors, including the
overall demand for explosives detection systems, market acceptance of
the  Company's and its competitors products, the timing of regulatory
approvals  for  the Company's systems and government  initiatives  to
promote  the  use  of  explosives detection  systems  such  as  those
manufactured and sold by the Company and economic conditions  in  the
Company's   targeted   markets.   Other  factors   that   may   cause
fluctuations  in  operating  results  include  the  timing   of   the
announcement, introduction and delivery of new products  and  product
enhancements  by the Company and its competitors, variations  in  the
Company's product mix and component costs, timing of customer orders,
adjustments of delivery schedules to accommodate customers' programs,
the  availability  of materials and labor necessary  to  produce  the
Company's  products, the availability of components  from  suppliers,
the timing and level of expenditures in anticipation of future sales,
and  pricing  and  other competitive conditions. Customers  may  also
cancel  or  reschedule  shipments and production  difficulties  could
delay  shipments.  Relatively  few system  sales  to  relatively  few
customers comprise a significant portion of the Company's revenues in
each  quarter. Therefore, small variations in the number  of  systems
sold  could  have  a significant effect on the Company's  results  of
operations. The Company believes that period to period comparisons of
its  results of operations are not necessarily meaningful and  should
not be relied upon as indications of future performance.

    Developing  Market;  Uncertainty  of  Market  Acceptance.     The
explosives detection system market is at a relatively early stage  of
development.  Acceptance of explosives detection systems on  a  broad
basis  will  be  dependent  upon  the  acceptance  and  adoption   of
explosives detection systems by airlines and airports throughout  the
world,   the  expansion  of  applications  for  explosives  detection
technology, government initiatives to support the expansion  of  this
market,   the  performance  and  price  of  the  Company's  and   its
competitors'  products,  customer  reaction  to  those  products  and
continued  cost and performance improvements in explosives  detection
technology.  The Company cannot assure that the explosives  detection
market will develop further or that the Company will be successful in
marketing  its  products  effectively and  obtaining  broader  market
acceptance  for its products. Failure to do so would have a  material
adverse  effect on the Company's business, results of operations  and
financial  condition.   Further,  if  one  of  the  Company's  or   a
competitor's  systems  were  to fail to detect  explosives  and  such
failure resulted in an airline bombing, the ability of the Company to
market its products could be materially adversely affected.

   Lengthy Sales Cycle.   As a result of the significant capital  and
other  commitments  required to install and integrate  the  Company's
products  into an airport baggage handling system, foreign regulatory
approval  requirements, and the developing nature of  the  explosives
detection  market, the Company has experienced extended sales  cycles
with its customers. The Company's sales efforts with certain existing
and  potential customers have extended over several years.  Customers
may  initially purchase one or a few units for extensive testing  and
evaluation  before making a decision regarding volume purchases  and,
in  certain  circumstances,  the  Company  may  provide  a  potential
customer  with  a  demonstration  unit  for  regulatory  testing  and
evaluation  free  of  charge. Delays in anticipated  purchase  orders
could  have  a  material  adverse effect on the  Company's  business,
results of operations and financial condition.

   Reliance on International Sales. .  In fiscal 1996,1997 and  1998,
international  sales  accounted  for  approximately  95%,  97%,  78%,
respectively, of the Company's revenues. The Company anticipates that
international  sales  will  continue to  account  for  a  significant
percentage   of  the  Company's  revenues.   Risks  associated   with
international   sales  include,  among  other  things,  international
regulatory  requirements and policy changes, political  and  economic
instability,   possible   foreign  currency  controls,   intellectual
property protection, currency exchange rate fluctuations, tariffs  or
other  barriers,  staffing  and  management  of  foreign  operations,
inventory   management,  accounts  receivable  collection   and   the
management of distributors or representatives.  In particular, recent
economic instability in the Asia/Pacific region may further delay  or
reduce  airport capital projects in that region which  could  have  a
material  adverse  effect  on  the  Company's  business,  results  of
operations  and  financial  condition.   In  addition,  most  foreign
countries  have their own regulatory approval requirements for  sales
of  the  Company's products.  As a result, the Company's introduction
of  new  products into international markets can be costly  and  time
consuming.  Moreover, the Company cannot assure that it will be  able
to  obtain the required regulatory approvals on a timely basis, if at
all.   Furthermore,  the  Company's  international  sales  have  been
denominated   primarily  in  United  States  dollars.   The   Company
anticipates   that  its  international  sales  may  increasingly   be
denominated  in  foreign  currencies.  The Company  on  occasion  has
hedged its foreign currency exposure by entering into forward foreign
exchange  contracts  to hedge against foreign currency  fluctuations.
The  Company's hedging efforts may not be successful, and other risks
associated  with  international  sales  and  operations  may  have  a
material  adverse  effect  on  the  Company's  business,  results  of
operations and financial condition.

   Uncertainty  of Product Development.  The Company's  success  will
depend  upon  its  ability to enhance its existing products,  and  to
develop new products to meet regulatory and customer requirements and
to  achieve  market  acceptance. The enhancement and  development  of
these  products  will be subject to all of the risks associated  with
new  product  development, including unanticipated delays,  expenses,
technical  problems or other difficulties that could  result  in  the
abandonment or substantial change in the commercialization  of  these
enhancements or new products.  Given the uncertainties inherent  with
product  development  and introduction, there  is  a  risk  that  the
Company  will  not be successful in introducing products  or  product
enhancements,   including  products  that  meet   FAA   certification
standards,  on a timely basis, if at all, and that the  Company  will
not  be  able  to  market  successfully these  products  and  product
enhancements once developed.

  Rapid Technological Change.   The market for the Company's products
is  characterized by rapid technological change and evolving industry
requirements.  The  Company believes that  its  future  success  will
depend  in  large  part  upon its ability  to  enhance  its  existing
products   and  to  successfully  develop  new  products  that   meet
regulatory and customer requirements and gain market acceptance.  The
Company's products may be rendered obsolete by new industry standards
or changing technology.

   Competition.   The markets for the Company's products  are  highly
competitive.  The Company's systems compete against dual energy X-ray
as  well  as  other competing technologies, including  CT  and  trace
detection.   Certain of the Company's competitors have  substantially
greater  manufacturing, marketing and financial  resources  than  the
Company.    In  addition,  other  major  corporations  have  recently
announced their intention to enter the security screening market  and
currently   have  systems  in  development.   Two  of  the  Company's
competitors  has developed products based upon CT scanner  technology
that  was  certified by the FAA.  The FAA has certified none  of  the
Company's  products.   Competitors may develop superior  products  or
products  of  similar quality for sale at the same or  lower  prices.
Other  technical  innovations may impair  the  Company's  ability  to
market its products.  The Company cannot assure that it will be  able
to compete successfully with existing or new competitors.

    Limited  Protection  of  Intellectual  Property  Rights;   Patent
Litigation.    The  Company's  success  depends  significantly   upon
proprietary  technology.  The Company  relies  on  a  combination  of
patent,  copyright,  trademark and trade secret laws,  non-disclosure
agreements  and  other contractual provisions to establish,  maintain
and  protect its proprietary rights, all of which afford only limited
protection. The Company has obtained five patents and has pending two
patent  applications in the United States.  In addition, for  certain
foreign  countries  the Company has pending patent applications  that
correspond to the subject matter of certain United States patents and
patent  applications.  The Company cannot assure that  its  unallowed
patent  applications  will  be granted, that  any  patent  or  patent
application  will  provide significant protection for  the  Company's
products  and  technology, or that the Company's  current  or  future
products,  processes  or  technology will  not  be  challenged  under
patents  held  by  competitors or potential  competitors.   Moreover,
foreign  intellectual  property laws may not  protect  the  Company's
intellectual  property rights.  In the absence of significant  patent
protection, the Company may be vulnerable to competitors who  attempt
to copy the Company's products, processes or technology.

   The  Company  has an exclusive perpetual license  to  use  certain
patent   rights   and  technology  developed  by  Hologic   for   the
development, manufacture and sale of X-ray screening security systems
for  explosives,  drugs,  currency and other contraband  (subject  to
termination  by  either  party  for certain  defined  defaults).  The
Company  also  has a nonexclusive license to use this technology  for
the  development,  manufacture and sale of X-ray-based  products  for
process control applications in the food and beverage industries.  If
the  Company  desires to develop products for other applications,  it
must  either  use  alternative technology  or  obtain  an  additional
license  from  Hologic.  The Company may not be able  to  develop  or
license  alternative technology for any additional  applications,  or
that  the  Company would be able to license Hologic's technology  for
these  applications  on favorable terms, if  at  all.   In  addition,
Hologic  could  develop  or  license its  technology  to  others  for
applications  competitive with those that may  be  developed  by  the
Company  outside  of  areas for which the Company  has  an  exclusive
license.

    The   Company  was  involved  in  patent  litigation  with   EG&G
Astrophysics  Research  Corporation ("EG&G"),  in  which  each  party
claimed  that the other was infringing certain patents  held  by  the
other.  On November 6, 1996, the Company and EG&G signed a settlement
agreement  pursuant to which, among other things, each  party  agreed
not to sue the other for patent infringement for nonmedical uses of X-
ray  technology covered by each other's existing patents or by patent
applications which claim priority from such patents, or, for products
existing  as  of September 12, 1996, covered by patents that  may  be
issued  pursuant to existing patent applications.  As a result,  each
party  will  have  broad  rights to use the  other's  existing  X-ray
technology  for an unlimited period of time.  There is  a  risk  that
EG&G  will  use  the  Company's technology in  a  manner  that  would
materially  and adversely affect the Company's business,  results  of
operations and financial condition.

   In  May 1996, the Company commenced an action in the United States
District Court for the District of Massachusetts against AS&E seeking
a declaration that the Company does not infringe AS&E patents related
to  back  scattered  X-rays.   This followed  AS&E's  allegations  of
infringement to third parties.  No discovery has been taken to  date.
Following a court decision in July 1997 construing the claims of  the
AS&E  patent,  which  decision the Company  considers  favorable,  in
September 1997 the Company filed a motion for summary judgment of non-
infringement.  AS&E has not yet filed its papers in opposition to the
Company's motion but is seeking discovery.  If granted, the Company's
motion will resolve all issues remaining in the case in favor of  the
Company.  Earlier, in April 1997, the Court dismissed AS&E's proposed
counterclaim seeking to allege patent infringement, so that the  only
remaining  issue in the case is the Company's request for declaration
of  non-infringement of two claims of a single AS&E patent. In  April
1998,  AS&E  filed a motion in the Federal Court of Appeals  for  the
First Circuit to appeal this decision.  This appeal is still pending.
Although the Company does not believe that it is infringing any valid
patent of AS&E, AS&E could make a new counterclaim in which it raises
more  specific infringement allegations.  Failure of the  Company  to
prevail  in this litigation could have a material adverse  effect  on
the   Company's   business,  results  of  operations  and   financial
condition.

   Management  of  Growth.  The Company has  undergone  a  period  of
growth,  and  any  continued expansion may significantly  strain  the
Company's  management,  financial and other resources.   Due  to  the
level  of technical and marketing expertise necessary to support  its
existing  and  new  customers, the Company must  attract  and  retain
highly  qualified and well-trained personnel.  There  are  a  limited
number  of  persons  with  the requisite skills  to  serve  in  these
positions,  and it may become increasingly difficult for the  Company
to   hire   such  personnel.   The  Company's  expansion   may   also
significantly   strain   the  Company's  management,   manufacturing,
financial  and other resources.  The Company cannot assure  that  its
systems,  procedures, and controls will be adequate  to  support  the
Company's operations or that the Company will be able to successfully
integrate its new personnel.  Failure to manage the Company's  growth
properly  could  have  a  material adverse effect  on  the  Company's
business, results of operations and financial condition.

   Risks  Associated with Possible Acquisitions.  The Company intends
to   pursue  potential  acquisitions  of  businesses,  products   and
technologies that could complement or expand the Company's  business.
The  Company  may not be able to identify any appropriate acquisition
candidate.   If the Company identifies an acquisition candidate,  the
Company  may not be able to successfully negotiate the terms  of  any
such acquisition, finance such acquisition or integrate such acquired
business,  products  or  technologies  into  the  Company's  existing
business  and  products.  Furthermore, the negotiation  of  potential
acquisitions as well as the integration of an acquired business could
cause  diversion of management's time and resources, and require  the
Company to use working capital to consummate a potential acquisition.
Any  acquisition, whether or not consummated, could have  a  material
adverse  effect on the Company's business, results of  operations  or
financial  condition.  If  the  Company  consummates  one   or   more
significant  acquisitions in which consideration consists  of  Common
Stock,  stockholders of the Company could suffer significant dilution
of their interests in the Company.

   Potential  for Product Liability Claims.   The Company's  business
involves  the  risk  of  product liability  claims  inherent  to  the
explosives  detection  industry. There are many  factors  beyond  the
control  of  the  Company that could result in  the  failure  of  the
Company's products to detect explosives, such as the reliability of a
customer's operators, the ongoing training of such operators and  the
maintenance of the Company's products by its customers. For these and
other  reasons, the Company's products may not detect all  explosives
concealed in screened bags.  The failure to detect an explosive could
give  rise  to  product  liability  claims  and  result  in  negative
publicity  that could have a material adverse effect on the Company's
business, results of operations and financial condition.  The Company
currently  maintains  aviation product liability  insurance  with  an
aggregate coverage limit of $150 million per year, subject to certain
deductibles  and  exclusions. This insurance may be  insufficient  to
protect  the Company from product liability claims.  Moreover,  there
is  a  risk that product liability insurance will not continue to  be
available to the Company at a reasonable cost, if at all.

  Euro Conversion.  On January 1, 1999, 11 of the 15 member countries
of  the  European  Union are scheduled to establish fixed  conversion
rates  between their existing sovereign currencies and the euro.   As
of January 1, 2002, the transition to the euro will be complete.  The
Company  has  operations within the European Union and  is  currently
preparing  for the euro conversion.  The issues that the  Company  is
addressing  include  analyzing exchange rate risk  in  cross  boarder
transactions  involving  participating countries  and  assessing  the
potential  impact of increased price transparency.  In addition,  the
euro  may  impact  general economic conditions such as  interest  and
foreign exchange rates within the participating countries or in other
areas  where  the Company operates, including the United Kingdom  and
Switzerland.   The Company is analyzing the impact of the  euro  with
view  to  minimize  the  effects on the  Company's  operations.   The
Company does not expect the costs associated with this transition  to
be  material.   The  Company's  functional  currency  for  accounting
purposes is the U.S. Dollar.  The overall effect of the transition to
the  euro  may  have  a  material adverse  affect  on  the  Company's
business, financial condition and financial results.

   Concentration of Ownership; Control by Management.  As of December
14,  1998,  the  Company's executive officers,  directors  and  their
affiliates and members of their immediate families beneficially owned
approximately  14%  of  the  outstanding  shares  of  Common   Stock,
excluding shares issuable upon exercise of options and warrants. As a
result, these stockholders, if acting together, will be able to exert
substantial  influence  over actions requiring stockholder  approval,
including  the  election of directors, amendments  to  the  Company's
Restated  Certificate of Incorporation, mergers, sales of  assets  or
other business acquisitions or dispositions.

   Antitakeover  Provisions.  The Company's Restated  Certificate  of
Incorporation  contains certain provisions that may  discourage  bids
for  the Company.  On October 15, 1998 the Board of Directors of  the
Company  adopted a shareholder purchase rights plan  and  declared  a
distribution of one Right for each outstanding share of the Company's
Common Stock. This could limit the price that certain investors might
be willing to pay in the future for shares of the Common Stock.

  Volatility of Stock Price.  The market price of the Common Stock
has been and may continue to be highly volatile.  The Company
believes that a variety of factors could cause the price of the
Common Stock to fluctuate, perhaps substantially, including:
announcements of developments related to the Company's business,
including announcements of certification by the FAA or other
regulatory authorities of the Company's or its competitors products;
quarterly fluctuations in the Company's actual or anticipated
operating results and order levels; general conditions in the
worldwide economy; announcements of technological innovations; new
products or product enhancements by the Company or its competitors;
developments in patents or other intellectual property rights and
litigation; and developments in the Company's relationships with its
customers and suppliers.  In addition, in recent years the stock
market in general and the markets for shares of small capitalization
and "high-tech" companies in particular, have experienced extreme
price fluctuations which have often been unrelated to the operating
performance of affected companies.  Any such fluctuations in the
future could adversely affect the market price of the Common Stock
and the market price of the Common Stock may decline.


Item 7A.  Quantitative and Qualitative Disclosures About Market Risk

  Foreign  Exchange Hedging.  The accounts of the foreign subsidiary,
Vivid  Technologies UK Ltd., are translated in accordance  with  SFAS
No. 52, Foreign Currency Translation.  In translating the accounts of
the  foreign subsidiary into U.S. dollars, assets and liabilities are
translated  at  the  rate of exchange in effect  at  year-end,  while
stockholders' equity is translated at historical rates.  Revenue  and
expense  accounts are translated using the weighted average  exchange
rate  in effect during the year.  Foreign currency transaction  gains
or  losses  for  Vivid  Technologies UK  Ltd.  are  included  in  the
accompanying   consolidated  statements  of  operations   since   the
functional currency for this subsidiary is the U.S. dollar.

  The  Company  had sales of approximately $8,044,000 and  $6,804,000
denominated in foreign currencies during 1997 and 1998, respectively.
The Company recognized a loss of approximately $47,000 and a gain  of
approximately $36,000, related to such foreign currency  transactions
in  1997  and  1998, respectively, which is included in other  income
(loss) in the accompanying consolidated statements of income.

  During  fiscal  1997,  the  Company entered  into  forward  foreign
exchange  contracts  to hedge certain receivables  denominated  in  a
foreign  currency.   The  purpose of this  hedging  activity  was  to
protect  the Company from the risk that dollar cash flows  from  such
receivables would be adversely affected by changes in exchange rates.
The Company does not engage in speculative hedging practices.  As  of
September  30,  1997,  the  Company  had  forward  foreign   exchange
contracts maturing through February 2, 1998 to purchase $5,393,000 in
Hong Kong dollars.  In accordance with SFAS No. 105, the contract was
marked to market.  At September 30, 1998, the Company had no exchange
contracts.   Gains and losses on forward foreign exchange commitments
are  deferred  and recognized in revenue in the same  period  as  the
hedged transactions.  The net gain (loss) was not material in 1997 or
1998.  See "Risk Factors-Reliance on International Sales" under  Item
7,  Management's Discussion and Analysis of Financial  Condition  and
Results of Operations.

  Investment   Portfolio.   The  Company  does  not  use   derivative
financial  instruments  that meet high credit quality  standards,  as
specified  in the Company's investment policy guidelines; the  policy
also  limits the amount of credit exposure to any one issue,  issuer,
and  type  of  instrument.  See "Note 1 - Operations and  Significant
Accounting Policies" in the Consolidated Financial Statements.


Item 8.  Financial Statements and Supplementary Data

The consolidated Financial Statements and Supplementary Data of the
Company are listed under Part IV, Item 14, in this Report.


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

Not applicable.



                              PART III

Item 10.  Directors and Executive Officers of the Registrant

     The information required by this Item 10 is hereby incorporated
by reference to the text appearing under Part I, Item 1 - Business
under the caption "Executive Officers of the Registrant" in this
Report, and by reference to the Company's definitive proxy statement
to be filed by the Company within 120 days after the close of its
fiscal year.


Item 11.  Executive Compensation

     The information required by this Item 11 is hereby incorporated
by reference to the information under the heading "Executive
Compensation" in the Company's definitive proxy statement to be filed
by the Company within 120 days after the close of its fiscal year.


Item 12.  Security Ownership of Certain Beneficial Owners and
Management

     The information required by this Item 12 is hereby incorporated
by reference to the information under the heading "Securities
Beneficially Owned by Directors, Officers and Principal Stockholders"
in the Company's definitive proxy statement to be filed by the
Company within 120 days after the close of its fiscal year.


Item 13.  Certain Relationships and Related Transactions

     The information required by this Item 13 is hereby incorporated
by reference to the information under the heading "Certain
Transactions," if any, in the Company's definitive proxy statement to
be filed by the Company within 120 days after the close of its fiscal
year.

                               PART IV

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

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

  (1)  Financial Statements
                                                             Page
     Report of Independent Public Accountants                 F-1
     
     Consolidated Balance Sheets as of September 30, 1997 
     and 1998                                                 F-2
     
     Consolidated Statements of Income for the years 
     ended September 30, 1996, 1997 and 1998                  F-3
     
     Consolidated Statements of Stockholders' Equity 
     for the years ended September 30, 1996, 1997 and 1998    F-4
     
     Consolidated Statements of Cash Flows for the years ended
     September 30, 1996, 1997 and 1998                        F-5
     
     Notes to Consolidated Financial Statements               F-6
     
  (2)  Financial Statement Schedules
     
     Supplemental schedules are not provided because of the absence
     of conditions under which they are required or because the
     required information is given in the financial statements or
     notes thereto.
     
  (3)  Listing of Exhibits


Exhibit No.                                           Reference

2.01       Merger Agreement between the Company        A**
           and the Company's Massachusetts
           predecessor
                                                         
3.01       Restated Certificate of Incorporation       A**
                                                         
3.02       By-laws of the Company                      A**
                                                         
4.01       Specimen Certificate for shares of          A**
           the Company's Common Stock
                                                         
4.02       Description of Capital Stock                A**
           (contained in the Restated
           Certificate of Incorporation of the
           Company, filed as Exhibit 3.01)
                                                         
4.03       Description of Registration Rights          A**
           (contained in Exhibits 10.05, 10.11
           and 10.13)
                                                         
4.04       Rights Agreement between the                C**
           Registrant and American Stock
           Transfer & Trust Company, as Rights
           Agent, dated as of October 13, 1998
                                                         
10.01      Contract for the Manufacture, Supply,       A**
           Installation and Commissioning of
           Hold Baggage Screening Equipment
           between the Company and BAA plc.
                                                         
10.02      Distribution and Development                A**
           Agreement between the Company and
           Gilardoni S.p.A.
                                                         
10.02a     Memorandum of Understanding between         B**
           Gilardoni S.p.A. and the Company
                                                         
10.03      First Amended and Restated Line of          A**
           Credit Loan and Security Agreement
           between the Company and BayBank, N.A.
           and corresponding Note of the Company
           in favor of BayBank, N.A.
                                                         
10.04      Form of Warrant to purchase Common          A**
           Stock issued to certain investors.
                                                         
10.05      Warrant to purchase Common Stock            A**
           issued to Dominion Fund II, L.P.
                                                         
10.06      1989 Combination Stock Option Plan of       A**
           the Company*
                                                         
10.07      1996 Non-Employee Director Stock            A**
           Option Plan of the Company*
                                                         
10.08      1996 Equity Incentive Plan of the           A**
           Company*
                                                         
10.09      Facility lease between the Company          A**
           and Cummings Properties Management,
           Inc.
                                                         
10.09a     Facility lease between the Company     Filed herewith
           and Cummings Properties Management,
           Inc.
                                                         
10.10      Form of Indemnification Agreement for       A**
           directors and officers of the
           Company*
                                                         
10.11      Series A and Series B Preferred Stock       A**
           Purchase Agreement
                                                         
10.12      Series C and Series D Preferred Stock       A**
           Purchase Agreement
                                                         
10.13      Conversion Agreement between the            A**
           Company and certain investors
                                                         
10.14      Amended Shareholder Agreement among         A**
           the Company's Massachusetts
           predecessor, S. David Ellenbogen, Jay
           A. Stein and certain investors
                                                         
10.15      Management Services Agreement between       A**
           the Company and Hologic, Inc.*
                                                         
10.16      License and Technology Agreement            A**
           between Company and Hologic, Inc.,
           together with First Amendment to such
           License and Technology Agreement
                                                         
10.17      Description of Bonus Plan*                  A**
                                                         
10.18      Demand Line of Credit Loan and              B**
           Security Agreement between the
           Company and BankBoston, N.A. and
           corresponding Note of the Company in
           favor of BankBoston, N.A.
                                                         
10.19      Amended and Restated Demand Line of    Filed herewith
           Credit Note
                                                         
21.01      Subsidiaries of the Company                 A**
                                                         
23.01      Consent of Arthur Andersen LLP         Filed herewith
                                                         
27.01      Financial Data Schedule                Filed herewith
____________________
     
A    Incorporated   by   reference  to  the  Company's   registration
     statement on Form S-1 (Registration No. 333-14311).  The  number
     set   forth  herein  is  the  number  of  the  Exhibit  in  said
     registration statement.

B    Incorporated  by reference to the Company's Form  10-K  for  the
     fiscal  year  ended September 30, 1997.  The  number  set  forth
     herein is the number of the Exhibit in said Form 10-K.

C    Incorporated  by  reference  to the  Company's  Form  8-K  dated
     October 13, 1998 filed as exhibit number 4 therein.

*    Management contract or compensatory plan or arrangement.

**   In accordance with Rule 12b-32 under the Securities Exchange Act
     of  1934,  as  amended,  reference  is  made  to  the  documents
     previously  filed  with the Securities and Exchange  Commission,
     which documents are hereby incorporated by reference.

(b)  REPORTS ON FORM 8-K

     The Company did not file any current reports on Form 8-K during
     the quarter ended September 30, 1998.

                             SIGNATURES

     Pursuant to the requirements of 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.

                              VIVID TECHNOLOGIES, INC.

Dated:  December 29, 1998     By:  /s/ S. David Ellenbogen
                                   S. David Ellenbogen
                                   Chief Executive Officer


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

Signature                Title                    Date

/s/ S. David Ellenbogen  Director and Chief    December 29, 1998
S. David Ellenbogen      Executive Officer


/s/ William J. Frain     Chief Financial      December 29, 1998
William J. Frain         Officer, Treasurer
                         and Principal 
                         Accounting Officer


/s/ Jay A. Stein         Director             December 29, 1998
Jay A. Stein


/s/ L. Paul Bremer III   Director             December 29, 1998
L. Paul Bremer III


/s/ Frank Kenny          Director             December 29, 1998
Frank Kenny


/s/ Glenn P. Muir        Director             December 29, 1998
Glenn P. Muir


/s/ Gerald Segel         Director             December 29, 1998
Gerald Segel


             Report of Independent Public Accountants
                                 
                                 
                                 
To Vivid Technologies, Inc.:

We  have  audited the accompanying consolidated balance  sheets  of
Vivid  Technologies, Inc. (a Delaware corporation) and subsidiaries
as  of  September  30, 1997 and 1998, and the related  consolidated
statements of income, stockholders' equity  and cash flows for each
of  the  three years in the period ended September 30, 1998.  These
financial  statements  are  the  responsibility  of  the  Company's
management.  Our responsibility is to express an opinion  on  these
financial statements based on our audits.

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

In  our opinion, the consolidated financial statements referred  to
above  present  fairly,  in all material  respects,  the  financial
position  of  Vivid  Technologies,  Inc.  and  subsidiaries  as  of
September  30,  1997 and 1998, and the results of their  operations
and  their  cash flows for each of the three years  in  the  period
ended  September  30, 1998, in conformity with  generally  accepted
accounting principles.


                                        /s/ Arthur Andersen LLP



Boston, Massachusetts
November 3, 1998
             
             
             VIVID TECHNOLOGIES, INC. AND SUBSIDIARIES
                                 
                    Consolidated Balance Sheets
                                 
                                 
                                 
                                                      September 30,
                                                     1997         1998
Assets                                                   
Current Assets:                                          
  Cash and cash equivalents                      $11,571,630  $15,555,189
  Short-term investments                           6,432,405   10,407,209
  Accounts receivable                              9,493,519    7,316,863
  Inventories                                      6,195,096    7,874,036
  Deferred tax asset                                 606,790      606,790
  Other current assets                               742,729    1,593,021
                                                         
    Total current assets                          35,042,169   43,353,108
                                                         
Property and Equipment, at cost:                         
  Machinery and equipment                          2,166,867    2,347,896
  Equipment under capital leases                     198,580      198,580
  Leasehold improvements                             165,995      228,374
  Furniture and fixtures                              84,462      129,479
                                                   2,615,904    2,904,329
Less-Accumulated depreciation and amortization     1,531,709    1,488,893
                                                   1,084,195    1,415,436
                                                         
Other Assets, net                                  1,330,233    1,155,945
                                                         
                                                 $37,456,597  $45,924,489
                                                         
Liabilities and Stockholders' Equity                     
                                                         
Current Liabilities:                                     
  Accounts payable                                $1,571,197  $  846,457
  Accrued expenses                                 2,418,431   2,766,268
  Deferred revenue                                 1,755,788   3,411,864
                                                         
    Total current liabilities                      5,745,416   7,024,589
                                                         
Commitments and Contingencies (Note 9)                   
                                                         
Stockholders' Equity:                                    
  Common stock, $.01 par value-                            
  Authorized-30,000,000 shares                             
  Issued and outstanding-9,496,684 and 
  9,904,666 shares in 1997 and 1998, respectively     94,967      99,047
  Capital in excess of par value                  26,190,785  26,745,142
  Retained earnings                                5,425,429  12,055,711
                                                         
    Total stockholders' equity                    31,711,181  38,899,900
                                                         
                                                 $37,456,597 $45,924,489
                                 
                                 
 The accompanying notes are an integral part of these consolidated
                       financial statements.
             
             
             VIVID TECHNOLOGIES, INC. AND SUBSIDIARIES
                                 
                 Consolidated Statements of Income
                                 
                                 
                                 
                                              Year Ended September 30,
                                          1996          1997          1998
                                                         
Revenues                             $15,578,326   $31,702,188   $38,718,041
                                                         
Cost of Revenues (includes                       
approximately $775,000, $988,000 and 
$1,014,000, respectively, of         
royalties to Hologic; see Note 7)      6,899,433    13,202,925    16,360,872
                                                          
    Gross profit                       8,678,893    18,499,263    22,357,169
                                                         
Operating Expenses (includes                             
approximately $325,000, $112,000 and
$138,000, respectively, of
management service expenses to
Hologic; see Note 7):
  Research and development             3,461,555     4,390,446     5,858,883
  Selling and marketing                1,394,880     3,556,006     4,334,823
  General and administrative           1,515,420     2,928,658     3,952,431
  Litigation expenses                  1,149,889       427,000       220,000
                                                          
    Total operating expenses           7,521,744    11,302,110    14,366,137
                                                         
Income from Operations                 1,157,149     7,197,153     7,991,032
                                                         
Interest Income                            7,615       812,926     1,270,759
                                                         
Other Income, net                             --        48,834       206,880
                                                         
    Income before income taxes         1,164,764     8,058,913     9,468,671
                                               
Provision for Income Taxes                    --     2,193,335     2,838,389
                                                          
    Net income                        $1,164,764    $5,865,578    $6,630,282
                                              
Net Income per Share:                                    
Basic                                     $  .69        $  .78        $  .68
Diluted                                   $  .15        $  .60        $  .65
                                                         
Weighted Average Number of 
  Shares Outstanding:
Basic                                  1,682,109     7,547,964     9,684,975
Diluted                                7,868,853     9,838,300    10,251,429
                                 
                                 
 The accompanying notes are an integral part of these consolidated
                       financial statements.
                    
                    
                    VIVID TECHNOLOGIES, INC. AND SUBSIDIARIES
<TABLE>                                        
                 Consolidated Statements of Stockholders' Equity
                                        
<CAPTION>                                        
                           Series B           Series D                
                         Convertible        Convertible                 
                          Preferred          Preferred                  
                            Stock              Stock              Common Stock  
                       Number     $.01     Number     $.01     Number       $.01   Capital in   Retained                    
                         of       Par        of       Par        of         Par    Excess of    Earnings
                       Shares    Value     Shares    Value     Shares      Value   Par Value    (Deficit)      Total

<S>                    <C>       <C>         <C>       <C>      <C>         <C>       <C>         <C>           <C>           
                                                                                                               
Balance, 
September 30, 1995    250,000   $2,500    254,585   $2,546  1,674,350    $16,743    $538,546  $(1,604,913)  $(1,044,578)
 Issuance of common         
  stock for services       --       --         --       --     15,000        150      44,850           --        45,000
 Exercise of stock  
  options                  --       --         --       --     51,170        512      10,883           --        11,395
 Net income                --       --         --       --         --         --          --    1,164,764     1,164,764
                                                                                                            
Balance, 
September 30, 1996    250,000    2,500    254,585    2,546  1,740,520     17,405     594,279     (440,149)      176,581
 Exercise of stock          
  options, including                                  
  tax benefit of
  $659,194                 --       --         --       --    333,800      3,338     809,231           --       812,569
 Exercise of stock           
  purchase warrants        --       --         --       --     76,514        765      32,195           --        32,960
 Conversion of                                                               -       -
  preferred stock    
  into common stock  (250,000)  (2,500)  (254,585)  (2,546) 5,045,850     50,459     (45,413)          --            --
 Sale of common  
  stock, net of
  issuance costs 
  of approximately
  $2,777,000               --       --         --       --  2,300,000     23,000  24,800,493           --    24,823,493
 Net income                --       --         --       --         --         --          --    5,865,578     5,865,578

Balance, 
September 30, 1997         --       --         --       --  9,496,684     94,967  26,190,785    5,425,429    31,711,181
 Exercise of stock 
  options, including
  tax benefit of
  $247,617                 --       --         --       --    159,110      1,591     472,090           --       472,681
 Exercise of stock 
  purchase warrants        --       --         --       --    248,872      2,489      82,267           --        84,756
 Net income                --       --         --       --         --         --          --    6,630,282     6,630,282
                                                                                         
Balance,                
September 30, 1998         --       --         --       --  9,904,666     99,047  26,745,142   12,055,711    38,899,900
</TABLE>                                 
                                        
   The accompanying notes are an integral part of these consolidated financial
                                   statements.
             
             
             VIVID TECHNOLOGIES, INC. AND SUBSIDIARIES
                                 
               Consolidated Statements of Cash Flows
                                 
                                             Year Ended September 30,
                                          1996         1997          1998
                                                              
Cash Flows from Operating Activities:                     
Net income                            $1,164,764   $5,865,578    $6,630,282
 Adjustments to reconcile net income                       
 to net cash provided by (used in)
 operating activities-
  Depreciation and amortization          344,894      441,072       759,420
  Issuance of common stock for services   45,000           --            --
  Changes in assets and liabilities-                        
   Accounts receivable                (2,552,354)  (5,773,041)    2,176,656
   Inventories                        (1,557,190)  (1,453,438)   (1,678,940)
   Deferred tax asset                   (181,000)    (425,790)           --
   Other current assets                 (387,520)    (297,827)     (850,292)
   Accounts payable                      767,303       72,957      (724,740)
   Accrued expenses                    1,156,031   (1,014,483)      347,837
   Deferred revenue                    1,042,085      713,703     1,656,076
                                                              
   Net cash (used in) provided by                    
   operating activities                 (157,987)  (1,871,269)    8,316,299
Cash Flows from Investing Activities:                     
 Purchase of property and equipment     (427,053)    (533,034)     (836,893)
 Purchases of investments                     --  (11,650,261)  (12,384,948)
 Maturities of investments                    --    3,999,000     9,629,000
 (Increase) decrease in other assets     (37,581)     109,620    (1,298,336)
                                                              
Net cash used in investing activities   (464,634)  (8,074,675)   (4,891,177)
                                                              
Cash Flows from Financing Activities:                     
 Net proceeds from sale of common stock       --   24,823,493            --
 Proceeds from exercise of stock                         
  purchase warrants                           --       32,960        84,756
 Redemption of Series A and Series C         
  preferred stock                             --   (5,780,650)           --
 Proceeds from exercise of stock                     
  options (including tax benefit)         11,395      812,569       473,681
 Payments on capital lease obligations  (161,962)     (32,522)           --
 Deferred financing costs               (127,000)          --            --
                                                              
Net cash provided by (used in)            
financing activities                    (277,567)  19,855,850       558,437
                                                              
Net (Decrease) Increase in Cash and            
Cash Equivalents                        (900,188)   9,909,906     3,983,559
                                                              
Cash and Cash Equivalents, beginning            
of year                               2,561,912     1,661,724    11,571,630
                                                              
Cash and Cash Equivalents, end 
of year                              $1,661,724    11,571,630    15,555,189
                                                              
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for-                            
 Interest                               $53,001        $2,040            --
 Income taxes                          $351,000    $1,772,500    $2,325,033
                                                              
Supplemental Disclosure of Noncash                        
Investing and Financing Activities:
 Assets acquired under capital leases  $198,850    $       --    $       --
 Conversion of Series B and D preferred 
 stock into common stock               $     --    $5,045,850    $       --
                                 
                                 
 The accompanying notes are an integral part of these consolidated
                       financial statements.
                                 


             VIVID TECHNOLOGIES, INC. AND SUBSIDIARIES
                                 
            Notes to Consolidated Financial Statements
                                 
                                 
                                 
                                 
(1)  Operations and Significant Accounting Policies
   
   Vivid  Technologies, Inc. (the Company) is a leading  developer,
   manufacturer  and marketer of automated inspection systems  that
   detect plastic and other explosives in airline baggage.
   
   The  accompanying consolidated financial statements reflect  the
   application of the accounting policies as described below.
   
   (a)Principles of Consolidation
   
       The  consolidated financial statements include the  accounts
       of  the  Company  and  its wholly owned subsidiaries,  Vivid
       Technologies  UK  Ltd., Vivid Foreign Sales Corporation  and
       Vivid  Securities  Corporation.  All  material  intercompany
       transactions   and   balances  have   been   eliminated   in
       consolidation.
       
   (b)Revenue Recognition

       The  Company recognizes product revenue upon shipment.   The
       Company's   product   sales   are   not   conditioned   upon
       satisfactory  installation by the Company.  Installation  is
       typically  performed by the customer or a systems integrator
       of  the  airport's  baggage handling system.   However,  the
       Company  has  typically assisted the systems integrator  and
       accrues  for  estimated installation costs, in  addition  to
       estimated  warranty  costs, at the time  of  shipment.   The
       Company   recognizes  revenue  from  the  sale  of  extended
       warranty  agreements  ratably  over  the  extended  warranty
       period.
       
       During  fiscal  1996, 1997 and 1998, the Company  recognized
       revenue  of approximately $716,000, $821,000 and $2,699,000,
       respectively,  under two separate research  and  development
       grants  from  an  agency of the U.S.  government  to  pursue
       certain   explosives   detection  research.    The   Company
       recognizes  revenue  under  these  grants  as  services  are
       rendered,  provided  that  the government  has  appropriated
       sufficient  funds for the work.  The Company retains  rights
       to all technological discoveries and products resulting from
       these efforts.
       
       Deferred  revenue represents amounts received from customers
       for products and services in advance of revenue recognition.
       
   (c)Cash and Cash Equivalents and Investments

       The  Company  accounts for investments  in  accordance  with
       Statement of Financial Accounting Standards (SFAS) No.  115,
       Accounting  for  Certain  Investments  in  Debt  and  Equity
       Securities.   In  accordance with SFAS No. 115,  investments
       that the Company has the positive intent and ability to hold
       to   maturity   are  reported  at  amortized   cost,   which
       approximates fair market value, and are classified as  held-
       to-maturity.  The Company has deemed all of its  investments
       to    be   held-to-maturity,   which   total   approximately
       $18,371,000 and $25,477,000 at September 30, 1997 and  1998,
       respectively.
       Cash equivalents are highly liquid investments with original
       maturities  of  three  months  or  less  at  the   time   of
       acquisition.  As of September 30, 1997 and 1998,  there  was
       approximately $10,720,000 and $15,070,000, respectively,  in
       cash  equivalents consisting of funds held in  money  market
       accounts,  certificates  of  deposit,  municipal  bonds  and
       repurchase agreements with overnight maturities.  Short-term
       investments have maturities of greater than three months but
       less  than one year.  Investments with maturities of greater
       than one year have been classified as long-term investments.
       As   of  September  30,  1997,  the  Company  had  long-term
       investments   of  approximately  $1,219,000  consisting   of
       commercial  paper,  with an average maturity  period  of  15
       months.   As of September 30, 1998 the Company had no  long-
       term investments.
       
   (d)Concentration of Credit Risk and Significant Customers

       SFAS  No.  105,  Disclosure of Information  About  Financial
       Instruments   with  Off-Balance-Sheet  Risk  and   Financial
       Instruments  with  Concentrations of Credit  Risk,  requires
       disclosure  of any significant off-balance-sheet and  credit
       risk concentrations.  Financial instruments that subject the
       Company  to credit risk consist primarily of cash  and  cash
       equivalents, investments and trade accounts receivable.  The
       Company   places   its  investments  in  several   financial
       institutions.  The Company has not experienced any  material
       losses  on these investments to date.  The Company  has  not
       experienced any material losses related to receivables  from
       individual  customers  or  groups  of  customers,  from  any
       geographic  region or in the baggage security and inspection
       industry.
       
       During fiscal 1997, the Company entered into forward foreign
       exchange  contracts to hedge certain receivables denominated
       in a foreign currency.  The purpose of this hedging activity
       was  to  protect the Company from the risk that dollar  cash
       flows  from such receivables would be adversely affected  by
       changes  in exchange rates.  The Company does not engage  in
       speculative  hedging practices.  As of September  30,  1997,
       the  Company had forward foreign exchange contracts maturing
       through February 2, 1998 to purchase $5,393,000 in Hong Kong
       dollars.  In accordance with SFAS No. 105, the contract  was
       marked to market.  At September 30, 1998, the Company had no
       exchange  contracts.  Gains and losses  on  forward  foreign
       exchange commitments are deferred and recognized in  revenue
       in the same period as the hedged transactions.  The net gain
       (loss) was not material in 1997 or 1998.
       
       The Company received greater than 10% of total revenues from
       the following customers during the years ended September 30,
       1996, 1997 and 1998:
       
                           September 30,
     Customer       1996         1997      1998
                                        
        A             79%          39%       42%
        B              *           19        12
        C              *           27         *
        D              *            *        16
                                        
*Revenues derived from these customers were less than 10% of the 
Company's total.
       
       The  Company  had accounts receivable balances greater  than
       10%   of   total  accounts  receivable  from  the  following
       customers as of September 30, 1997 and 1998:
       
                                September 30,
             Customer         1997         1998
                                            
                 A               *           26%
                 B              61%           *
                 C              12            *
                 D               *            *
                 E              15           19
                 F               *           11
                 G               *           19
                                        
*Accounts receivable balances from these customers were less than 
10% of the Company's total.
       
   (e)Disclosure of Fair Value of Financial Instruments

       The  Company's financial instruments consist mainly of  cash
       and  cash equivalents, investments, accounts receivable  and
       accounts  payable.  The carrying amounts  of  the  Company's
       cash  and cash equivalents, investments, accounts receivable
       and accounts payable approximate fair value due to the short-
       term nature of these instruments.
   
   (f)  Translation of Foreign Currencies
   
       The  accounts  of the foreign subsidiary are  translated  in
       accordance  with SFAS No. 52, Foreign Currency  Translation.
       In  translating the accounts of the foreign subsidiary  into
       U.S.  dollars, assets and liabilities are translated at  the
       rate  of exchange in effect at year-end, while stockholders'
       equity  is  translated  at historical  rates.   Revenue  and
       expense  accounts are translated using the weighted  average
       exchange  rate in effect during the year.  Foreign  currency
       transaction gains or losses for Vivid Technologies  UK  Ltd.
       are included in the accompanying consolidated statements  of
       operations since the functional currency for this subsidiary
       is the U.S. dollar.
       
       The  Company  had  sales  of  approximately  $8,044,000  and
       $6,804,000 denominated in foreign currencies during 1997 and
       1998,  respectively.   The  Company  recognized  a  loss  of
       approximately  $47,000 and a gain of approximately  $36,000,
       related  to such foreign currency transactions in  1997  and
       1998, respectively, which is included in other income (loss)
       in the accompanying consolidated statements of income.
       
   (g)Inventories

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

                                   September 30,
                              1997              1998
                               
    Raw materials       $3,175,211        $4,061,775
    Work-in-process      1,743,746         1,440,435
    Finished goods       1,276,139         2,371,826
                               
                        $6,195,096        $7,874,036
       
       Finished  goods and work-in-process inventories  consist  of
       materials, labor and overhead.
   
   (h)Depreciation and Amortization

       The  Company  provides for depreciation and amortization  by
       charges to operations using the straight-line and declining-
       balance  methods, which allocate the cost  of  property  and
       equipment over their estimated useful lives, as follows:

                                Assets                  Estimated
                           Classification               Useful Life
                       
                        Machinery and equipment          5 years
                        Equipment under capital leases   Life of lease
                        Leasehold improvements           Life of lease
                        Furniture and fixtures           7 years

   (i)Other Assets

       During   1998,   the  Company  entered  into  an   exclusive
       technology  license  agreement.  Under  the  agreement,  the
       Company   paid  $1,250,000  for  the  exclusive   right   to
       manufacture, use or sell the licensed technology for a three-
       year period, with a nonexclusive right for the remainder  of
       the life of the patents.  The Company also has the option to
       extend  the exclusive rights beyond three years.   Upon  the
       ultimate  commercialization of the technology,  the  Company
       will  be  required  to pay royalties on  sales  of  products
       incorporating  the  licensed technology,  as  defined.   The
       license  fee is included in other assets in the accompanying
       consolidated  balance sheets and is being amortized  over  a
       period  of  five years.  At September 30, 1998, the  Company
       has   recorded  accumulated  amortization  of  approximately
       $250,000 related to this asset.
       
       Other   assets   also  consists  of  long-term  investments,
       deposits and patent costs, which are being amortized over 10
       years   using   the  straight-line  method.    The   Company
       periodically   assesses  the  realizability  of   long-lived
       assets, including intangible assets such as patent costs and
       license  fees,  in accordance with SFAS No. 121,  Accounting
       for  Impairment  of  Long-Lived Assets  and  for  Long-Lived
       Assets To Be Disposed Of.  The Company has not recorded  any
       impairment of its intangible assets to date.
   
   (j)Net Income per Share
   
       In  March  1997,  the Financial Accounting  Standards  Board
       (FASB)  issued  SFAS  No.  128, Earnings  per  Share.   This
       statement established standards for computing and presenting
       earnings  per  share and applies to entities  with  publicly
       traded  common stock or potential common stock.  In February
       1998,  the  Securities and Exchange Commission (SEC)  issued
       Staff  Accounting  Bulletin (SAB)  No.  98.   This  bulletin
       revises  the  SEC's  guidance for calculating  earnings  per
       share  with respect to equity security issuances  before  an
       initial   public  offering  (IPO).   These  statements   are
       effective  for fiscal years ending after December 15,  1997.
       The  prior years' earnings per share have been retroactively
       restated to reflect the adoption of SFAS No. 128 and SAB No.
       98.
       
       Basic  net  income per share was determined by dividing  net
       income  by  the  weighted average common shares  outstanding
       during  the  period.   Diluted  net  income  per  share  was
       determined  by  dividing  net  income  by  diluted  weighted
       average shares outstanding.  Diluted weighted average shares
       reflects  the  dilutive effect, if any, of potential  common
       stock.    Potential  common  stock  includes  common   stock
       options,  warrants to purchase common stock and  convertible
       preferred  stock  to  the extent their effect  is  dilutive.
       Nominal  issuances  arise  when a registrant  issues  common
       stock, options or warrants to purchase common stock or other
       potentially  dilutive instruments for nominal consideration,
       as  defined by SAB No. 98, in the periods preceding an  IPO.
       During  the period preceding the Company's IPO, the  Company
       did not have any nominal issuances.
       
       
       The  calculations  of  basic and  diluted  weighted  average
       shares outstanding are as follows:
       
                                                Year Ended September 30,
                                              1996        1997        1998
                                                     
Basic weighted average shares outstanding  1,682,109   7,547,964   9,684,975

Weighted average potential common stock    6,186,744   2,290,336     566,454
                                                     
Diluted weighted average shares 
outstanding                                7,868,853   9,838,300  10,251,429
       
       Diluted  weighted average shares outstanding do not  include
       113,726  and 503,347 common equivalent shares for the  years
       ended  September 30, 1997 and 1998, respectively,  as  their
       effect would be antidilutive.
       
   (k)Management Estimates
       
       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  disclosure   of
       contingent  assets  and  liabilities  at  the  date  of  the
       financial  statements and the reported amounts  of  revenues
       and  expenses  during the reporting period.  Actual  results
       could  differ from those estimates.  The Company is  subject
       to risks and uncertainties, in particular, dependence on key
       customers   and  international  sales,  rapid  technological
       change, dependence on government regulations and significant
       fluctuations and unpredictability of operating results.
       
   (l)Research and Development and Software Development Costs

       Research   and  development  costs  have  been  charged   to
       operations  as  incurred.  SFAS No. 86, Accounting  for  the
       Costs  of  Computer Software To Be Sold, Leased or Otherwise
       Marketed,  requires the capitalization of  certain  computer
       software  development  costs  incurred  after  technological
       feasibility is established.  The Company believes that  once
       technological  feasibility of a software  product  has  been
       established,  the additional development costs  incurred  to
       bring the product to a commercially acceptable level are not
       significant.
       
   (m)New Accounting Standards
       
       In  June  1997,  the  FASB issued SFAS  No.  130,  Reporting
       Comprehensive  Income.  SFAS No. 130 requires disclosure  of
       all  components  of comprehensive income on  an  annual  and
       interim  basis.   Comprehensive income  is  defined  as  the
       change  in equity of a business enterprise during  a  period
       from  transactions  and other events and circumstances  from
       nonowner  sources.   SFAS No. 130 is  effective  for  fiscal
       years beginning after December 15, 1997.
       
       In  July  1997,  the FASB issued SFAS No.  131,  Disclosures
       About  Segments  of  an Enterprise and Related  Information.
       SFAS  No.  131  requires certain financial and supplementary
       information  to be disclosed on an annual and interim  basis
       for  each  reportable segment of an enterprise, as  defined.
       SFAS  No. 131 is effective for fiscal years beginning  after
       December 15, 1997.  Unless impracticable, companies would be
       required  to disclose similar prior period information  upon
       adoption.
       
       In  March  1998, the American Institute of Certified  Public
       Accountants (AICPA) issued Statement of Position (SOP) 98-1,
       Accounting  for the Costs of Computer Software Developed  or
       Obtained  for  Internal  Use.  SOP  98-1  requires  computer
       software costs associated with internal-use software  to  be
       charged    to   operations   as   incurred   until   certain
       capitalization  criteria are met.   SOP  98-1  is  effective
       beginning January 1, 1999.  The Company does not expect  the
       adoption of this statement to have a material impact on  its
       consolidated financial position or results of operations.
       
       In  April 1998, the AICPA issued SOP 98-5, Reporting on  the
       Costs of Start-Up Activities.  SOP 98-5 provides guidance on
       the  financial reporting of start-up costs and  organization
       costs.   It  requires  costs  of  start-up  activities   and
       organization costs to be expensed as incurred.  This SOP  is
       effective   for  financial  statements  for   fiscal   years
       beginning  after December 15, 1998.  Initial application  of
       this  SOP  will  require that the Company  take  a  one-time
       charge  for  any capitalized start-up or organization  costs
       remaining on the balance sheet.  The Company does not expect
       the adoption of this statement to have a material impact  on
       its   consolidated   financial  position   or   results   of
       operations.
       
       In  June 1998, the FASB issued SFAS No. 133, Accounting  for
       Derivative Instruments and Hedging Activities.  SFAS No. 133
       establishes   accounting   and   reporting   standards   for
       derivative   instruments,   including   certain   derivative
       instruments   embedded  in  other  contracts   (collectively
       referred  to  as  derivatives) and for  hedging  activities.
       SFAS  No. 133 is effective for fiscal years beginning  after
       June 15, 1999.  The Company does not expect the adoption  of
       this statement to have a material impact on its consolidated
       financial position or results of operations.

(2)  Income Taxes

   The  Company  accounts  for income taxes  under  SFAS  No.  109,
   Accounting  for  Income  Taxes, the objective  of  which  is  to
   recognize  the  amount of current and deferred income  taxes  at
   the  date  of  the  financial statements  as  a  result  of  all
   differences  in  the tax basis and financial statement  carrying
   amount  of  assets and liabilities, as measured by  enacted  tax
   laws.

   The  approximate  income tax effect of each  type  of  temporary
   difference and carryforward is as follows:
   
                                                        September 30,
                                                      1997         1998
                                        
Research and development credit carryforwards       $32,000      $32,000
Nondeductible accruals                               27,000      331,000
Nondeductible reserves                              543,000      223,000
Other temporary differences                           4,790       20,790
                                        
Net deferred tax asset                             $606,790     $606,790

   Under  SFAS No. 109, the Company recognizes a deferred tax asset
   for  the  future  benefit  of its temporary  differences  if  it
   concludes that it is more likely than not that the deferred  tax
   asset will be realized.

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

                                                       September 30,
                                                  1996     1997     1998
                                                    
Income tax provision at federal statutory rate    34.0%    34.0%    34.0%
Increase (decrease) in tax resulting from-
State tax provision, net of federal benefit        8.1      3.2      1.9
Foreign sales corporation benefit                 (7.5)    (5.0)    (3.5)
Foreign net operating losses not benefited         4.1       --       --
Reduction in valuation allowance                 (15.5)    (1.2)      --
Research and development tax credit utilized     (24.1)    (3.8)    (3.3)
Other                                              0.9     (0.2)     0.9
                                                    
  Effective tax rate                                --%    27.0%    30.0%
   
   The  provision for income taxes in the accompanying consolidated
   statements of operations consists of the following:

                             September 30,
                      1996        1997       1998
      Federal-                           
      Current       $179,000  $2,173,335  2,767,389
      Deferred      (179,000)   (224,000)        --
                                        
                          --   1,949,335  2,767,389
     State-                             
      Current          2,000     271,000     71,000
      Deferred        (2,000)    (27,000)        --
                                        
                          --     244,000     71,000
                                        
                    $     --  $2,193,335 $2,838,389

(3)  Line of Credit

   The  Company has an unsecured demand line of credit with a  bank
   for   $5,000,000.   Borrowings  under  the  line  are  available
   through  February 28, 1999 and bear interest at one  of  several
   interest  rates,  including  the bank's  prime  rate  (8.25%  at
   September  30,  1998)  and a LIBOR index rate.   There  were  no
   amounts  outstanding under this line at September 30,  1997  and
   1998.

(4)  Redeemable Preferred Stock

   The   Company  had  previously  authorized  578,065  shares   of
   redeemable preferred stock, par value $.01 per share,  of  which
   234,375 shares and 343,690 shares had been designated as  Series
   A  and  Series  C redeemable preferred stock, respectively.   In
   connection  with  the Company's initial public  offering  during
   1997,  the Company redeemed all outstanding shares of  Series  A
   and  Series  C  redeemable  preferred  stock  for  approximately
   $5,781,000,  which represents a redemption value of  $10.00  per
   share.

(5)  Stockholders' Equity

   (a)  Preferred Stock
   
       In   December   1996,  the  Company's  Board  of   Directors
       authorized  the  issuance  of  up  to  1,000,000  shares  of
       undesignated $.01 par value preferred stock, the rights  and
       privileges  of  which are to be determined by the  Company's
       Board  of  Directors.  The Series A, B, C  and  D  preferred
       stock  were retired in connection with the Company's initial
       public  offering  (see Note 5(b) and  (c)).   There  are  no
       preferred  shares outstanding as of September  30,  1997  or
       1998.
   
    (b) Series B and D Convertible Preferred Stock
   
       The  Company  had  previously authorized 504,585  shares  of
       convertible  preferred stock, par value $.01 per  share,  of
       which  250,000 shares and 254,585 shares had been designated
       as  Series  B  and  Series  D convertible  preferred  stock,
       respectively.  In  connection  with  the  Company's  initial
       public offering in fiscal 1997, all shares of Series  B  and
       Series D convertible preferred stock were converted into  an
       aggregate 5,045,850 shares of common stock.
       
   (c)Initial Public Offering

       During fiscal 1997, the Company completed its initial public
       offering  of 2,300,000 shares of the Company's common  stock
       at  $12.00 per share.  The Company received net proceeds  of
       approximately  $24,823,000 after deducting the underwriters'
       commission   and   issuance   costs.    The   Company   used
       approximately $5,781,000 of the net proceeds to  redeem  all
       of  its outstanding shares of redeemable Series A and Series
       C  preferred  stock.  In connection with the initial  public
       offering,  all  of  the  Company's Series  B  and  Series  D
       preferred stock was converted into an aggregate of 5,045,850
       shares of common stock.
       
   (d)Common Stock

       The  Company  has authorized 30,000,000 shares of  $.01  par
       value  common stock. The Company has reserved the  following
       number of common shares as of September 30, 1998:

                Exercise of stock purchase warrants       53,678
                Exercise of stock options              1,406,570     
                                                       1,460,248
       
       In  July  1996, the Company issued 15,000 shares  of  common
       stock  to  a customer at no cost in lieu of fees on  certain
       sales  of  the  Company's products for  which  the  customer
       provided  substantial  assistance  through  access  to   the
       customer's  facilities and liaison activities.  The  Company
       recorded  a $45,000 charge to selling and marketing expenses
       for the issuance of these shares during fiscal 1996.
       
   (e)Stock Plans

        1989 Combination Stock Option Plan
        
        The  Company's 1989 Combination Stock Option Plan (the 1989
        Plan)  provides  for  the grant to key employees  incentive
        stock  options  to purchase shares of the Company's  common
        stock  at  a  price  not  less than fair  market  value  as
        determined  by  the  Board  of Directors,  or  nonqualified
        options  at  a  price specified by the Board of  Directors.
        Under  the  1989 Plan, the Company has reserved shares  for
        the  granting of options to purchase up to 1,250,000 shares
        of the Company's common stock.
       
        The 1996 Equity Incentive Plan
        
        In  October  1996,  the Company approved  the  1996  Equity
        Incentive  Plan  (the Equity Plan) for  which  the  Company
        reserved shares for the granting of options to purchase  up
        to 750,000 shares of the Company's common stock.
        
        The 1996 Nonemployee Director Stock Option Plan
        
        In  October 1996, the Company approved the 1996 Nonemployee
        Director  Stock Option Plan (the Director Plan)  for  which
        the  Company  has  reserved  shares  for  the  granting  of
        options  to purchase up to 125,000 shares of the  Company's
        common stock.
        
        As  of  September  30,  1998, there  were  595,220  options
        available for future grants under all plans.  A summary  of
        stock option activity under all plans is as follows:

                                   Shares    Price per         Weighted
                                               Share            Average
                                                               Exercise
                                                                Price
                                                          
Outstanding, September 30, 1995   757,420   $ .10-1.00         $  .46
Granted                           157,750    1.00-3.00           2.22
Exercised                         (51,170)    .10-1.00            .85
Terminated                         (7,100)    .50-1.00            .87

Outstanding, September 30, 1996   856,900     .10-3.00            .78
Granted                           386,050    9.50-17.00         14.27
Exercised                        (333,800)    .10-3.00            .46
Terminated                        (20,450)    .50-3.00           1.15
                                            
Outstanding, September 30, 1997   888,700     .10-17.00          6.75
Granted                           225,950     .01-14.88         12.77
Exercised                        (159,110)    .01-11.00           .60
Terminated                       (148,890)    .50-16.75         11.08
                                 
Outstanding, September 30, 1998   806,650   $ .10-17.00       $  8.85
       
Exercisable, September 30, 1998   276,580   $ .10-17.00       $  4.33

During fiscal 1998, the Company issued an option to purchase 10,000
shares of common stock to an employee at a price below fair market.
All other options were issued at the fair market value at the grant
date.   The Company recorded the difference between the grant price
and fair market value in the statement of income.

The  range  of exercise prices for options outstanding and  options
exercisable at September 30, 1998 are as follows:

                           Options Outstanding  Options Exercisable
Range of        Weighted    Number   Weighted   Number   Weighted
Exercise        Average              Average             Average
 Price         Remaining             Exercise            Exercise
              Contractual             Price               Price
                 Life
              (in years)
                                                    
$0.10-$1.00       4.7      269,600   $  0.61   184,050   $  0.48
$3.00-$9.50       8.0      105,300      4.77    32,940      4.31
$10.75-$15.50     9.1      213,900     13.71     5,940     14.71
$15.88-$17.00     8.5      217,850     16.25    53,650     16.38
                                                    
Total            7.33      806,650   $  8.85   276,580   $  4.33

The  Company accounts for its stock-based compensation plans  under
Accounting  Principles Board Opinion No. 25, Accounting  for  Stock
Issued  to  Employees.  In October 1995, the FASB issued  SFAS  No.
123,  Accounting for Stock-Based Compensation, which established  a
fair-value-based method of accounting for stock-based  compensation
plans.   The  Company  has adopted the disclosure-only  alternative
under  SFAS  No.  123 which requires disclosure of  the  pro  forma
effects on net income and earnings per share as if SFAS No. 123 had
been adopted, as well as certain other information.

The  Company has computed the pro forma disclosures required  under
SFAS  No.  123  for  all  stock options  and  warrants  granted  to
employees  of the Company in fiscal 1996, 1997 and 1998  using  the
Black Scholes option pricing model prescribed by SFAS No. 123.  The
assumptions used to calculate the SFAS No. 123 pro forma disclosure
and the weighted average information for 1996, 1997 and 1998 are as
follows:

                                Year Ended September 30,
                                 1996      1997      1998
                                                   
   Risk-free interest rate      6.04%     6.01%     5.52%
   Expected dividend yield        --        --        --
   Expected lives (in years)    4.7       4.9       4.7
   Expected volatility          53%       52%       67%
  Weighted-average grant date   
   fair value of options
   granted during the year     $1.10      $7.16    $8.08
       
       
The  pro forma effect of applying SFAS No. 123 for all options  and
granted to employees of the Company in 1996, 1997 and 1998 would be
as follows:

                                 Year Ended September 30,
                             1996          1997          1998
                                            
Net Income-                                 
As reported             $1,164,764    $5,865,578    $6,630,282
Pro forma                1,125,371     5,104,357     5,382,540
                              
Net income per share-                       
Basic-                                      
  As reported                $0.69         $0.78         $0.68
  Pro forma                   0.67          0.68          0.56
Diluted-                                    
  As reported                $0.15         $0.60         $0.65
Pro forma                     0.14          0.52          0.53

       The  resulting  pro forma compensation expense  may  not  be
       representative of the amount to be expected in future years,
       as  the  pro forma expense may vary based on the  number  of
       options granted.  The Black-Scholes option pricing model was
       developed  for  use in estimating the fair value  of  traded
       options  that  have no vesting restrictions  and  are  fully
       transferable. In addition, option pricing models require the
       input  of  highly subjective assumptions, including expected
       stock  price  volatility.  Because  the  Company's  employee
       stock  options have characteristics significantly  different
       from  those  of  traded options and because changes  in  the
       subjective input assumptions can materially affect the  fair
       value estimate, in management's opinion, the existing models
       do  not necessarily provide a reliable single measure of the
       fair value of its employee stock options.
   
   (f)Stock Purchase Warrants

       In  conjunction  with a $400,000 promissory note  issued  in
       fiscal  1992 and repaid in fiscal 1993, the Company  sold  a
       warrant, at nominal value, to purchase 42,667 shares of  the
       Company's  common  stock at $1.50  per  share.   This  stock
       purchase warrant was exercised during fiscal 1997, resulting
       in a net issuance of 39,789 shares of common stock.

       In  conjunction  with  the issuance of  certain  convertible
       notes  in  fiscal 1993, the Company sold, at nominal  value,
       warrants to purchase 361,002 shares of the Company's  common
       stock  for $1.50 per share.  The warrants expire in December
       2001.   During  fiscal 1997 and 1998, warrants  to  purchase
       37,792  and  269,530  shares, respectively,  were  exercised
       resulting  in the net issuance of 36,725 and 248,872  shares
       of common stock, respectively.
       
   (g)Shareholder Purchase Rights Plan
       
       In October 1998, the Company's Board of Directors adopted  a
       Shareholder  Protection Rights Plan declaring a dividend  of
       one  right  for  each  share of the Company's  common  stock
       outstanding  at the close of business on October  27,  1998.
       The  rights  entitle the Company's shareholders to  purchase
       one  one-thousandth  of  a  share  of  a  series  of  junior
       participating preferred stock of the Company at an  exercise
       price of $60.00, subject to adjustment.  The rights will not
       be  exercisable until a subsequent distribution  date  which
       will   occur  if  a  person  or  group  acquires  beneficial
       ownership  of 15% or more of the Company's common  stock  or
       announces a tender or exchange offer that would result in  a
       group  owning  15%  or more of the Company's  common  stock.
       Subject to certain limited exceptions, if a person or  group
       acquires  beneficial  ownership  of  15%  or  more  of   the
       Company's outstanding common stock, each holder of  a  right
       (other  than  the 15% holder whose rights become  void  once
       such  holder reaches the 15% threshold) will thereafter have
       a  right to purchase, upon payment of the purchase price  of
       the right, that number of shares of the Corporation's common
       stock,  which at the time of such transaction  will  have  a
       market  value equal to two times the purchase price  of  the
       right.   In  the event that, at any time after a  person  or
       group  acquires 15% or more of the Company's  common  stock,
       the  Company  is  acquired  in a merger  or  other  business
       combination  transaction of 50% or more of its  consolidated
       assets  or  earning power are sold, each holder of  a  right
       will thereafter have the right to purchase, upon payment  of
       the  purchase price of the right, that number of  shares  of
       common  stock of the acquiring company which at the time  of
       such  transaction will have a market value of two times  the
       purchase price of the right.  The Board of Directors of  the
       Company may exchange the rights (other than rights owned  by
       such person or group which have become void), in whole or in
       part, at an exchange ratio of one share of common stock  per
       right  (subject to adjustment).  At any time  prior  to  the
       time  any  person  or  group acquires 15%  or  more  of  the
       Company's  common  stock,  the Board  of  Directors  of  the
       Company may redeem the rights in whole, but not in part,  at
       a  price  of  $0.001 per right.  The rights will  expire  on
       October 13, 2008 unless earlier redeemed or exchanged.
       
(6)  Geographical Sales Data

   A  summary of the Company's revenues by geographic region is  as
   follows:

                          September 30,
                     1996      1997      1998
                                  
Europe               95.0%     51.5%     57.3%
United States         4.6      2.6       22.5
Asia                  0.3     45.7       14.3
Middle East            --       --        5.9
Other                 0.1      0.2         --
                              
Total                 100%     100%       100%
   
   Substantially  all of the Company's assets are  located  in  the
   United States.

(7)  Related Party Transactions

   (a)Management Services Agreement

       The  Company has an agreement with Hologic, Inc.  (Hologic),
       an  affiliated company, whereby Hologic provides management,
       administrative  and  support  services.   In  addition,  the
       Company  subleased  its  facilities  from  Hologic  under  a
       sublease  agreement, which was terminated in February  1996,
       for  approximately  $15,000 per  month.   The  Company  paid
       Hologic  for all direct costs incurred, as well as a portion
       of  Hologic's overhead costs, as defined, representing a pro
       rata portion of costs attributable to the Company.  Expenses
       charged   to   operations   under  these   agreements   were
       approximately  $325,000, $112,000  and  $138,000  in  fiscal
       1996,  1997  and 1998, respectively.  Approximately  $20,000
       and  $27,000 had not been paid as of September 30, 1997  and
       1998, respectively, under the management services agreement.
       
   (b)License and Technology Agreement

       The  Company  has  an  agreement with  Hologic  whereby  the
       Company  has  a perpetual, exclusive, worldwide  license  to
       utilize certain of Hologic's technology and patents for  the
       purpose of developing the Company's x-ray screening security
       systems for explosives, drugs, currency and other contraband
       (the  Exclusive License).  In September 1996,  this  license
       was  amended to grant the Company a nonexclusive license  to
       utilize these patents and technology for certain new product
       development   for   other  applications  (the   Nonexclusive
       License).   Royalty payments to Hologic under the  Exclusive
       License  are  5% of revenues, as defined, on the  first  $50
       million in sales; thereafter, payments are 3% on revenues up
       to  $200  million,  with  no royalty payments  on  aggregate
       revenues  in  excess  of  $200 million.   During  1997,  the
       Company  reduced  its  royalty  payments  to  3%  under  the
       Exclusive License upon achievement of cumulative revenues in
       excess   of   $50  million.   Royalty  payments  under   the
       Nonexclusive  License are 3% on sales up  to  $200  million,
       with no royalty payments on aggregate revenues in excess  of
       $200  million.  The agreement terminates by mutual agreement
       of   the   two   parties  or  upon  certain  other   defined
       circumstances.   During  fiscal 1996,  1997  and  1998,  the
       Company   incurred  royalty  expenses  under  the  Exclusive
       License  of approximately $775,000, $988,000 and $1,014,000,
       respectively, of which approximately $753,000  and  $504,000
       had  not  been  paid  as of September  30,  1997  and  1998,
       respectively.   To  date, the Company has not  incurred  any
       royalty expenses under the Nonexclusive License.

(8)  Profit-Sharing 401(k) Plan

   The   Company  has  a  qualified  profit-sharing  plan  covering
   substantially all of its employees.  Contributions to  the  plan
   are  at the discretion of the Company's Board of Directors.  The
   Company   has   recorded  approximately  $65,000,  $74,000   and
   $133,000  as  a  provision for profit-sharing  contribution  for
   fiscal 1996, 1997 and 1998, respectively.

(9)  Commitments and Contingencies

   (a)Operating Leases

       The Company is renting the facilities under operating leases
       which  expire  through February 2003.  The Company's  future
       minimum  lease  payments under all operating  leases  as  of
       September 30, 1998 are as follows:

                Year                Amount
                    
                1999               $553,000
                2000                688,000
                2001                331,000
                2002                262,000
                2003                207,000
                    
                                 $2,041,000

       Rent expense charged to operations for fiscal 1996, 1997 and
       1998  was  approximately  $302,000, $438,000  and  $525,000,
       respectively.
   
   (b)Patent Infringement Claims

       Litigation expense in the accompanying statements of  income
       represents   costs  incurred  related  to   certain   patent
       infringement claims which have been settled or dismissed  as
       of  September 30, 1998.  From time to time, the  Company  is
       party  to various types of litigation.  The Company believes
       it  has  meritorious  defenses to all  claims,  and  in  its
       opinion, all litigation currently pending or threatened will
       not  have  a  material  effect on  the  Company's  financial
       position or results of operations.

   (c)Patent License Agreement

       During  fiscal  1996,  the Company  entered  into  a  patent
       license  agreement  for  the exclusive  license  of  certain
       explosives detection technology.  Under this agreement,  the
       Company  is  required to pay aggregate royalties  of  up  to
       $1,000,000  based on net sales, as defined.   During  fiscal
       1996,  1997  and  1998,  the Company incurred  approximately
       $28,000,  $97,000  and  $112,000, respectively,  of  royalty
       expense related to this agreement.
   
   (d)Joint Development and Royalty Agreement

       During  fiscal  1997,  the  Company  entered  into  a  joint
       development  and  royalty agreement for the  development  of
       certain explosives detection technology.  Under the terms of
       the  agreement, the Company is required to pay a royalty  of
       $3,000  per unit sold of the developed product, as  defined.
       During 1998, the Company prepaid royalties in the amount  of
       approximately  $500,000, which are being  amortized  as  the
       royalties   are   incurred.    At   September   30,    1998,
       approximately $414,000  of prepaid royalties are included in
       other   current  assets  in  the  accompanying  consolidated
       balance sheets.  For the year ended September 30, 1998,  the
       Company  incurred $87,000 in royalty expenses.   No  royalty
       expenses  were  incurred for the year  ended  September  30,
       1997.

(10) Accrued Expenses

   Accrued   expenses  in  the  accompanying  consolidated  balance
   sheets consist of the following:

                                        September 30,
                                    1997           1998
                                 
Payroll and payroll-related     $601,959       $907,959
Accrued warranty                 798,000        798,000
Accrued royalties                789,684        537,782
Accrued legal                     75,954         50,323
Other                            152,834         79,564
Accrued taxes                         --        392,640
                              $2,418,431     $2,766,268