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SECURITIES AND EXCHANGE COMMISSION

Form 10-K

FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d)

Commission file number 0-6715

(978) 977-3000

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

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

     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 o          No þ

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

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

     The aggregate market value of the Registrant’s Common Stock held by non-affiliates of the registrant at January 30, 2004 was approximately $502,626,000.

     Number of shares of Common Stock outstanding at December 31, 2004: 13,688,954

DOCUMENTS INCORPORATED BY REFERENCE:

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PART I

      The Company is restating its financial statements for the fiscal years ended July 31, 2002 and July 31, 2003 (the “Restatement”). All financial information reported for those fiscal years in this Annual Report on Form 10-K reflects the Restatement. The Company’s Annual Reports on Form 10-K for fiscal 2002 and 2003 have not been revised to reflect the Restatement, and the financial statements for fiscal 2002 and 2003 contained in those reports should not be relied upon. Instead, the financial statements included in this Annual Report on Form 10-K should be relied upon for those fiscal years. Please see Note 1 of Notes to Consolidated Financial Statements for more information regarding the Restatement.

      Total revenues of Analogic Corporation (hereinafter, together with its subsidiaries, referred to as “Analogic” or the “Company”) for the fiscal year ended July 31, 2004, were $355.6 million as compared to $471.7 million for fiscal 2003, a decrease of 25%. Net income for fiscal 2004 was $8.4 million or $0.62 per diluted share as compared to $49.5 million or $3.70 per diluted share for fiscal 2003.

      In November 2003, the Company established ANEXA Corporation (“Anexa”), 100% owned subsidiary, to market complete advanced digital medical imaging solutions directly to select end-user markets in the United States. Anexa is a provider of complete integrated digital imaging solutions incorporating innovative digital radiography systems, advanced application software, desktop computed radiography systems, and other key products from industry leading Original Equipment Manufacturers (“OEMs”).

      In April 2004, the Company completed the construction of a 100,000 square foot addition to its headquarters building in Peabody, Massachusetts. This two-story addition has enabled the Company to further consolidate its existing Massachusetts operations and to expand production capacity for its medical and security systems businesses. The cost of the building, including fit-up, was approximately $13.0 million and was financed by internally generated cash.

      In August 2003, Mr. John W. Wood Jr., the Company President, was appointed Chief Executive Officer, succeeding Mr. Bernard M. Gordon.

      In May 2004, Mr. John A. Tarello was elected Chairman of the Board of Directors, succeeding Mr. Bernard M. Gordon.

      Analogic was incorporated in the Commonwealth of Massachusetts in November 1967.

      The Company operates primarily within two major markets within the electronics industry: Medical Technology Products and Security Technology Products. Medical Technology Products consist of three reporting segments: Medical Imaging Products which consist primarily of electronic systems and subsystems for medical imaging equipment and patient monitoring; Camtronics Medical Systems Ltd. for information management systems for the cardiology market; and B-K Medical Systems ApS for ultrasound systems and probes in the urology, surgery and radiology markets. Security Technology Products consist of advanced weapon and threat detection systems and subsystems. See Note 19 of Notes to Consolidated Financial Statements for more information.

      Analogic is a leading designer and manufacturer of advanced health and security systems and subsystems sold primarily to OEMs. The Company is recognized worldwide for advancing state-of-the-art technology in the areas of Computed Tomography (“CT”), Digital Radiography (“DR”), Ultrasound, Magnetic Resonance Imaging (“MRI”), Patient Monitoring, Cardiovascular Information Management, and Embedded Multiprocessing. Analogic’s principal customers are OEMs that incorporate Analogic’s state-of-the-art products

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      Analogic conceives, designs, manufactures, and sells standard and customized high-precision data acquisition, and signal and image-processing-based medical and security systems and subsystems. Analogic has been a leader in the application of precision analog-to-digital (“A/ D”) and digital-to-analog (“D/ A”) conversion technology. This involves the conversion of continuously varying (i.e., “analog”) electrical signals, such as those representing temperature, pressure, voltage, weight, velocity, and ultrasound and X-ray intensity, into and from the digital form required by medical and security imaging and monitoring equipment, other data processing equipment, and in subsystems and systems based on such technology.

      In addition to their precision measurement capabilities, many Analogic products perform very high-speed, complex calculations on the data being analyzed. Thus, Analogic’s products are an integral part of the communications link between various analog sensors, detectors or transducers, and the people or systems that interpret or utilize this information.

      Analogic’s products are sold primarily within two major markets within the electronics industry: Medical Technology Products and Security Technology Products.

      Medical Imaging Products, which accounted for 49% of product and engineering revenue in fiscal 2004, consists primarily of electronic systems and subsystems for medical imaging equipment and patient monitoring.

      A number of Analogic’s medical imaging data acquisition systems and related computing equipment are incorporated by manufacturers in North America, Europe, and Asia into advanced X-ray equipment known as CT scanners. These scanners generate images of the internal anatomy, which are used primarily in diagnosing medical conditions. Analogic’s data acquisition and signal processing systems have advanced CT scanner technology that substantially increases the resolution of the image, reduces the time necessary to acquire the image, and reduces the computing time required to produce the image. Analogic supplies some of its medical imaging customers with A/ D and D/ A conversion equipment and complete data acquisition systems. The Company also manufactures complete CT systems incorporating proprietary technology. Some of these CT systems are integrated with other technologies, such as Single Photon Emission Tomography Systems (SPECT) and radiotherapy systems.

      The Company also designs and manufactures for OEM customers advanced Radio Frequency (RF) amplifiers, gradient coil amplifiers, and spectrometers for use in MRI scanners. These MRI scanners are used primarily to create diagnostic medical images.

      Direct Digital Radiography (DDR) systems are also designed, developed, and manufactured by Analogic. DDR uses a solid-state, flat-panel, digital-detector technology consisting of an amorphous selenium coating over a Thin Film Transistor (TFT) array to convert X-rays into electrical signals and create an image. Systems are developed and manufactured for an OEM customer and for direct sale to select markets by Anexa.

      The Company manufactures a variety of multi-functional, custom patient monitoring instruments. Several families of monitors acquire, calculate, and display combinations of the most common vital sign parameters, such as Electrocardiogram (ECG), Respiration, Temperature, Non-Invasive Blood Pressure (NIBP), and Pulse Oximetry (SpO2). These monitors are designed to be used in a variety of hospital settings such as emergency room, sub-acute units, and general care and surgical centers, where ease-of-use, portability, flexibility, and costs are important considerations, as well as in physicians’ offices.

      The Company manufactures fetal monitoring products for conversion and display of biomedical signals. These monitors are designed for use in antepartum applications and have the capability to measure, compute, display and print fetal heart rates, maternal contraction frequency, and relative intensity to determine both maternal and fetal well being.

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      Anexa markets and sells complete advanced digital medical imaging solutions directly to end users in select markets. Anexa’s specialty is DR systems for such applications as orthopedics, emergency medicine, pediatrics, and general radiology in small-to-mid-size hospitals.

      Anrad Corporation (“Anrad”), a 100% owned subsidiary, designs and manufactures state-of-the-art, direct conversion amorphous-selenium-based, X-ray, digital, flat-panel detectors for diagnostic and interventional applications in mammography and a number of other DR applications.

      Sound Technology, Inc. (“STI”), a 100% owned subsidiary, produces linear and tightly curved array ultrasound transducers and probes for a broad range of clinical applications that are supplied to medical equipment companies. These products are supplied to a global customer base of ultrasound systems manufacturers on an original equipment manufacturing basis.

      Camtronics Medical Systems Ltd. (“Camtronics”), a 100% owned subsidiary, designs and manufactures multi-modality image and information management systems for cardiology. These systems can integrate all cardiac patient data into an enterprise-wide information system. Camtronics, an industry leader in cardiac workstation technology also designs and manufactures state-of-the-art digital imaging systems for cardiology and radiology. Camtronics accounted for 14% of product and engineering revenue in fiscal 2004.

      B-K Medical Systems ApS (“B-K Medical”), a 100% owned subsidiary, designs and manufactures ultrasound systems and probes for end-user markets in urology, surgery, and radiology. Its scanners generate real-time images of the internal anatomy that are used for medical diagnosis and interventional procedures. B-K Medical also manufactures key subsystems on an OEM basis for ultrasound equipment manufacturers. B-K Medical accounted for 18% of product and engineering revenue in fiscal 2004.

      Security Technology Products, consisting of advanced threat and weapon detection systems and subsystems, accounted for approximately 9% of product and engineering revenue in fiscal 2004.

      Analogic designs and manufactures the Explosive Assessment Computed Tomography (EXACT^TM) scanner. The EXACT is the world’s first dual-energy, helical-cone-beam, 24-slice CT scanner. It is the only security detection system in the world capable of generating data for full three-dimensional (3D) images of every object contained within a piece of luggage. The EXACT is the core system of L-3 Communications’ Security and Detection System division (“L-3”) eXaminer 3DX® 6000 (“The eXaminer”), the first second-generation Explosive Detection System (EDS) certified by the Federal Aviation Administration (FAA). The eXaminer is being purchased by the US federal government for installation at major U.S. airports to scan checked luggage.

      Analogic also designs and manufactures a key digital front-end component, the Data Acquisition System (DAS), for two EDS systems manufactured by the only other supplier of FAA-certified Explosive Detection Systems.

      Analogic has also designed and developed prototypes of a high-speed, low-cost, carry-on-baggage CT scanning system, the COBRA, to detect explosives, drugs, and other contraband. This system is designed to automatically detect threats and weapons in carry-on luggage at passenger portals in airports and carry-on luggage items at portals for cruise ships, rail stations, courthouses, embassies and other public buildings, as well as to scan mail and small parcels.

      Corporate and Other, consisting of a hotel; high-speed signal processing equipment consisting of A/ D converters and supporting modules; high-speed digital signal processors such as Array Processors; and embedded multi-computing platforms; accounted for approximately 10% of total revenue in fiscal 2004.

      The Company owns a hotel, which is located adjacent to the Company’s principal executive offices and manufacturing facility in Peabody, Massachusetts. The hotel is strategically situated in an industrial park, is in close proximity to the historic and tourist area of Boston’s North Shore, and is approximately 18 miles from Boston. The hotel has 256 guest rooms, a ballroom, several function rooms, and appropriate recreational facilities. The hotel is managed for the Company under a contract with Marriott Corporation.

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      A/ D converters convert continuously varying “analog” signals into the numerical “digital” form required by microprocessors and other data processing equipment. Analogic manufactures a wide variety of high-speed 14 and 16 bit low noise converters.

      Analogic specializes in the manufacture of high-precision and high performance, rather than lower-cost, low-precision and minimal performance, data conversion products. Typical applications of these devices include the conversion of industrial and biomedical signals into computer language.

      Sky Computers, Inc. (“Sky”), a 100% owned subsidiary, designs and manufactures high performance embedded multicomputing platforms used in advanced medical, military, and industrial imaging applications.

Marketing and Distribution

      The Company sells its products domestically and abroad directly through the efforts of its officers and employees and on occasion through a network of independent sales representatives and distributors located in principal cities around the world. In addition, Analogic subsidiaries in Europe, Canada, and the United States act as distributors. The majority of distributors order from the Company as they receive orders from their customers and do not stock inventory for resale. Generally, sales made to distributors are based on fixed discounts applied to established list prices under normal payment terms. Returns are allowed for defective products under authorized warranty repair. Some of Analogic’s distributors also represent manufacturers of competing products.

Sources of Raw Materials and Components

      In general, Analogic’s products are composed of Company-designed proprietary integrated circuits, printed circuit boards, and precision resistor networks manufactured by Analogic and others in accordance with Analogic’s specifications, as well as standard electronic integrated circuits, transistors, displays, and other components. Most items procured from third party suppliers are believed to be available from more than one source. However, it may be necessary, if a given component ceases to be available, for Analogic to modify its product design to adapt to a substitute component or to purchase new tooling to enable a new supplier to manufacture the component, which would result in additional expense and/or delays in product sales. Also, from time to time the availability of certain electronic components has been disrupted. Accordingly, Analogic carries a substantial inventory of raw materials and components in an effort to assure its ability to make timely delivery to its customers.

Patents and Licenses

      The Company holds approximately 116 patents of varying duration issued in the United States, which cover technology developed by it. In many instances, the Company holds corresponding foreign patents. The Company regularly files U.S. patent applications and, where appropriate, foreign patent applications. The Company also files continuations to cover both new and improved methods, apparatus, processes, designs and products. At present, approximately 127 U.S. and foreign patent applications are in process.

      The Company also relies on a combination of trade secret, copyright and trademark laws, as well as contractual agreements to safeguard its proprietary rights in technology and products. In seeking to limit access to sensitive information to the greatest practical extent, the Company routinely enters into confidentiality and assignment of invention agreements with each of its employees and nondisclosure agreements with its key customers and vendors.

      Management believes that any legal protection afforded by patent and copyright laws are of secondary importance as a factor in the Company’s ability to compete. Future prospects are more a function of the continuing level of excellence and creativity of the Company’s engineers in developing products which satisfy customer needs, and the innovative skills, competence and marketing and managerial skills of the Company’s personnel in selling those products. Moreover, the Company believes that market positioning and rapid market entry are equally important to the success of its products. Management is of the opinion that the loss of patent protection would not have a material effect on the Company’s competitive position.

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Seasonal Aspect of Business

      There is no material seasonal element to the Company’s business, although plant closings in the summer, particularly in Europe, tend to decrease the procurement activities of certain customers during the first quarter of the Company’s fiscal year.

Working Capital Matters

      The Company does not carry a substantial inventory of finished goods but does carry a substantial inventory of raw material components and work-in-process to enable it to meet its customers’ delivery requirements. (See Note 6 of Notes to Consolidated Financial Statements.)

Material Customers

      The Company’s three largest customers in fiscal 2004, each of which is a significant and valued customer, were Toshiba, General Electric and Siemens, which accounted for approximately 12.2%, 9.8%, and 8.5%, respectively, of product and engineering revenue. Loss of any one of these customers would have a material adverse effect on the Company’s business.

Backlog

      The backlog of firm orders at July 31, 2004 was approximately $113.0 million compared with approximately $105.6 million at July 31, 2003. The increase is principally due to an increase in orders for CT medical scanners and EXACT systems, partially offset by a reduction due to recognition of deferred revenue by Camtronics. Many of the orders in the Company’s backlog permit cancellation by the customer under certain circumstances. To date, Analogic has not experienced material cancellation of orders. The Company reasonably expects to ship substantially all of its July 31, 2004 backlog during fiscal 2005.

Government Contracts

      The amount of the Company’s business that may be subject to renegotiation of profits at the election of the U.S. federal government is insignificant.

Competition

      Analogic is subject to competition based upon product design, performance, pricing, quality and service. Analogic believes that its innovative engineering and product reliability have been important factors in its growth. While the Company tries to maintain competitive pricing on those products that are directly comparable to products manufactured by others, in many instances, Analogic’s products will conform to more exacting specifications and carry a higher price than analogous products manufactured by others.

      Analogic’s medical X-ray imaging systems are highly specialized. The Company considers its selection by its OEM customers for the design and manufacture of these products and its other medical products to be due more to the “make-or-buy” decision of its individual OEM customers than a function of other competitors in the field. Many OEM customers and potential OEM customers of the Company have the capacity to design and manufacture these products for themselves. In the Company’s area of expertise, the continued signing of new contracts indicates continued strength in the Company’s relationship with its major customers, although some of these customers continue to commit to shorter-term contracts.

      Analogic’s competitors include divisions of some larger, more diversified organizations, as well as several specialized companies. Some of them have greater resources and larger staffs than Analogic. The Company believes that it is a leading manufacturer of CT and MRI subsystems for the medical industry.

Research and Product Development

      Research and product development (“R&D”) is a significant factor in Analogic’s business. The Company maintains a constant and comprehensive R&D program directed toward the creation of new

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      Company funds expended for R&D amounted to $58.7 million in fiscal 2004, $55.1 million in fiscal 2003, and $39.1 million in fiscal 2002. Analogic intends to continue its emphasis on new product development. As of July 31, 2004, Analogic had approximately 510 employees engaged in research and product development activities, including electronic development engineers, software engineers, physicists, mathematicians, and technicians. These individuals, in conjunction with the Company’s salespeople, also devote a portion of their time assisting customers in utilizing the Company’s products, developing new uses for these products, and anticipating customer requirements for new products.

      The Company capitalized $4.8 million and $3.5 million in fiscal 2004 and 2003, respectively, of computer software testing and coding costs incurred after technological feasibility was established. These costs are amortized using a straight-line method over the estimated economic life of the related products, generally three years, and are included in product cost of sales.

Environment

      Our manufacturing facilities are subject to numerous environmental laws and regulations, particularly with respect to industrial waste and emissions. Compliance with these laws and regulations has not had a material impact on our capital expenditures, earnings or competitive position.

Employees

      As of July 31, 2004, the Company had approximately 1,700 employees.

Financial Information about Segments, Foreign and Domestic Operations and Export Revenue

      The Company operates primarily within two major markets within the electronics industry: Medical Technology Products and Security Technology Products. Medical Technology Products consist of three reporting segments: Medical Imaging Products which consist primarily of electronic systems and subsystems for medical imaging equipment and patient monitoring; Camtronics for information management systems for the cardiology market; and B-K Medical for ultrasound systems and probes in the urology, surgery and radiology markets. Security Technology Products consist of advanced weapon and threat detection systems and subsystems. See Note 19 of Notes to Consolidated Financial Statements for more information regarding the Company’s segments.

      Domestic and foreign revenues were $300.6 million and $55.0 million respectively for fiscal 2004 compared to $429.9 million and $41.8 million in fiscal 2003 and $270.2 million and $34.7 million in fiscal 2002.

      Export revenue, from sales of products and engineering services from the United States primarily to companies in Europe and Asia, amounted to approximately $105.0 million (30%) of product and engineering revenue in fiscal 2004 as compared to approximately $91.9 million (20%) in fiscal 2003, and approximately $99.4 million (34%) in fiscal 2002. The Company’s export revenue is at least as profitable as its domestic revenue. The Company’s export revenue is denominated in U.S. dollars.

      Management does not believe the Company’s foreign and export revenue is subject to significantly greater risks than its domestic revenue.

Available Information

      The Company’s website address is www.analogic.com. The information on the Company’s website is not incorporated by reference into this document and should not be considered to be a part of this document. The Company’s website address is included in this document as an inactive textual reference only.

      The Company makes available free of charge through its website its Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and amendments to the reports, as soon

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      Analogic’s principal executive offices and major manufacturing facility are located in Peabody, Massachusetts on land owned by the Company. This facility consists of approximately 504,000 square feet of manufacturing, engineering, and office space. The Company owns approximately 65 acres of land at this location, which can accommodate future expansion as required. The Company uses approximately 7 1/2 acres of this land for the Peabody Marriott Hotel, which is owned by a wholly-owned subsidiary of the Company and managed by the Marriott Corporation.

      In April 2004, the Company completed the construction of a 100,000 square foot addition to its headquarters building in Peabody, Massachusetts. This two-story addition has enabled the Company to further consolidate its existing Massachusetts operations and to expand production capacity for its medical and security systems business. The cost of the building, including fit-up, was approximately $13.0 million and was financed by internally generated cash.

      In July 2003, the Company sold a building located in Peabody, Massachusetts for $3.15 million to 6 Centennial LLC, a Massachusetts limited liability company wholly-owned by the Bernard Gordon Charitable Remainder Unitrust, of which Bernard M. Gordon, a member of the Board of Directors of the Company, is a trustee. An independent appraisal obtained by the Company prior to the sale established the fair market value of the property at $3.2 million. The Company did not pay a broker’s fee in connection with the sale. The Company realized a gain of $1.6 million on the sale of this property.

      The Company and its subsidiaries own and lease various other office, manufacturing, engineering and sales facilities in both the United States and abroad. The Company believes that its existing facilities are generally adequate to meet its current needs, and that suitable additional or substitute space will be available on commercially reasonable terms when needed.

      See Item 13 of this Report and Note 12 of Notes to Consolidated Financial Statements for further information concerning certain leases.

      On June 16, 2004, L-3 Communications Corporation and L-3 Communication Security Systems Corporation filed a complaint against the Company in the Court of Chancery of the State of Delaware. The complaint asserted that an agreement between L-3 Communications Corporation and the Company (the “Teaming Agreement”) requires the Company to team exclusively with L-3 Communications Corporation in the development and sale of automatic explosives detection systems (“EDSs”) used in airports to detect explosives and other dangerous materials in checked baggage. The complaint alleged that the Company breached the Teaming Agreement by, among other things, developing and submitting to the US Transportation Security Administration (the “TSA”) research and development proposals relating to EDSs for checked baggage on it own, with a third party, and without L-3 Communications Corporation. The Company denied all material allegations set forth in the complaint. The Company, L-3 Communications Corporation and L-3 Communications Security Systems Corporation agreed to a settlement of the litigation, and on November 8, 2004, the Court of Chancery of the State of Delaware dismissed the complaint without prejudice with respect to certain claims and with prejudice with respect to the remaining claims. The settlement does not entail payment by either party.

      None

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PART II

      Since November 4 2004, the Company’s Common Stock has traded on the NASDAQ National Market under the symbol: ALOGE. Prior to November 4, 2004, the Company’s Common Stock traded on the NASDAQ National Market under the symbol: ALOG. The following table sets forth the high and low sales prices per share of the Common Stock, as reported by the NASDAQ National Market for each quarterly period indicated in the table below:

      As of August 31, 2004, there were approximately 1,175 holders of record of the Common Stock.

      Dividends of $0.08 per share were declared for each of the quarters of fiscal 2004 and fiscal 2003. The policy of the Company is to retain sufficient earnings to provide funds for the operation and expansion of its business.

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	(A)	The Company recorded asset impairment losses on a pre-tax basis of $8,883 in the first quarter of fiscal 2002 related to Anatel Communications Corporation (“Anatel”), the Company’s telecommunications subsidiary, and certain old and unprofitable product lines within its semi-conductor test equipment business. The Company recorded asset impairment losses on a pre-tax basis of $3,200 in the fourth quarter of fiscal 2001 related to Anatel. These charges have been recorded in the cost of sales section of the Company’s Consolidated Statements of Income for fiscal 2002 and 2001.

      The Company has restated its financial statements for the fiscal years ended July 31, 2002 and July 31, 2003 (the “Restatement”). All financial information reported for those fiscal years in this Annual Report on Form 10-K reflects the Restatement. Please see Note 1 of Notes to Consolidated Financial Statements for more information regarding the Restatement.

      The following discussion provides an analysis of the Company’s financial condition and results of operations and should be read in conjunction with the Consolidated Financial Statements and notes thereto included elsewhere in this Annual Report on Form 10-K. The discussion below contains forward-looking statements within the meaning of the Securities Exchange Act of 1934. All statements, other than statements of historical fact, the Company makes in this document or in any document incorporated by reference are forward-looking. Such forward-looking statements involve known and unknown risks, uncertainties, and other factors, which may cause the actual results, performance, or achievements of the Company to differ from the projected results. See “Risk Factors” below.

Critical Accounting Policies, Judgments, and Estimates

      The SEC considers critical accounting policies to be the ones that are most important to the portrayal of a company’s financial condition and operating results, and require management to make its most difficult and

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Revenue Recognition and Accounts Receivable

      The Company recognizes the majority of its revenue in accordance with SEC Staff Accounting Bulletin No. 104, “Revenue Recognition in Financial Statements”. Revenue related to product sales is recognized upon shipment provided that title and risk of loss have passed to the customer, there is persuasive evidence of an arrangement, the sales price is fixed or determinable, collection of the related receivable is reasonably assured and customer acceptance criteria, if any, have been successfully demonstrated. For product sales with acceptance criteria that are not successfully demonstrated prior to shipment, revenue is recognized upon customer acceptance provided all other revenue recognition criteria have been met. Our sales contracts generally provide for the customer to accept title and risk of loss when the product leaves our facilities. When shipping terms or local laws do not allow for passage of title and risk of loss at shipping point, we defer recognizing revenue until title and risk of loss transfer to the customer.

      The Company’s transactions sometimes involve multiple elements (i.e., systems and services). Revenue under multiple element arrangements is recognized in accordance with Emerging Issues Task Force (“EITF”) Issue No. 00-21, “Accounting for Revenue Arrangements with Multiple Deliverables”. Under this method, if an element is determined to be a separate unit of accounting, the revenue for the element is based on fair value and determined by verifiable objective evidence, and recognized at the time of delivery. Maintenance or service revenues are recognized ratably over the life of the contracts.

      For business units that sell software licenses, the Company recognizes revenue in accordance with the American Institute of Certified Public Accountants (“AICPA”)’s Statement of Position 97-2, “Software Revenue Recognition” (“SOP 97-2”). The application of SOP 97-2 requires judgment, including whether a software arrangement includes multiple elements, and if so, whether vendor-specific objective evidence (VSOE) of fair value exists for those elements. License revenue is recognized upon delivery, provided that persuasive evidence of an arrangement exists, no significant obligations with regards to installation or implementation remain, fees are fixed or determinable, collectibility is reasonably assured and customer acceptance, when applicable, is obtained. Hardware and software maintenance is marketed under annual and multi-year arrangements and revenue is recognized ratably over the contracted maintenance term. Service revenues are recognized ratably over the life of the contracts.

      The Company provides engineering services to some of its customers on a contractual basis and recognizes revenue using the percentage of completion method. The Company estimates the percentage of completion on contracts with fixed fees on a monthly basis utilizing hours incurred to date as a percentage of total estimated hours to complete the project. If the Company does not have a sufficient basis to measure progress towards completion, revenue is recognized upon completion of the contract. When total cost estimates exceed revenues, the Company accrues for the estimated losses immediately.

      Revenue related to the hotel operations is recognized as services are performed.

      Inherent in the revenue recognition process are significant management estimates and judgments, which influence the timing and the amount of revenue recognition. Camtronics, one of the Company’s subsidiaries, provides several models for the procurement of its digital cardiac information systems and for each model, its management must make significant estimates and judgments regarding revenue recognition. The predominant model includes a perpetual software license agreement, project-related installation services, professional consulting services, computer hardware and sub-licensed software and software support.

      Camtronics provides installation services, which include project-scoping services, conducting pre-installation audits, detailed installation plans, actual installation of hardware components, and testing of all hardware and software installed at the customer site. Because installation services are deemed to be essential

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      Camtronics also provides professional consulting services, which include consulting activities that fall outside of the scope of the standard installation services. These services vary depending on the scope and complexity requested by the client. Examples of such services include additional database consulting, system configuration, project management, interfacing to existing systems, and network consulting. Professional consulting services generally are not deemed to be essential to the functionality of the software. If Camtronics has VSOE for the consulting services, the timing of the software license revenue is not impacted. However, Camtronics commonly performs consulting services for which the Company does not have VSOE; accordingly, the software license revenue is deferred until the services are completed. If VSOE does exist professional consulting service revenue is recognized as the services are performed.

      Deferred revenue is comprised of 1) license fee, maintenance and other service revenues for which payment has been received and for which services have not yet been performed and 2) revenues related to delivered components of a multiple-element arrangement for which vendor specific objective evidence of fair value has not been determined for components not yet delivered or accepted by the customer. Deferred costs represent costs related to these revenues; for example, costs of goods sold and services provided and sales commission expenses.

      The Company grants credit to domestic and foreign original equipment manufacturers, distributors and end users, and performs ongoing credit evaluations on its customer’s financial condition. The Company continuously monitors collections and payments from its customers and maintains a provision for estimated credit losses based upon historical experience and any specific customer collections issues that have been identified.

Inventories

      The Company values inventory at the lower of cost or market using the first-in, first-out (FIFO) method. Management assesses the recoverability of inventory based on types and levels of inventory held, forecasted demand and changes in technology. These assessments require management judgments and estimates, and valuation adjustments for excess and obsolete inventory may be recorded based on these assessments. As of July 31, 2004 and 2003, the Company had valuation reserve balances equal to $10.8 million and $10.4 million, respectively.

Concentration of Credit Risk

      Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents, marketable securities and accounts receivable. The Company places its cash investments and marketable securities in high credit quality financial instruments and, by policy, limits the amount of credit exposure to any one financial institution. The Company grants credit to domestic and foreign original equipment manufacturers, distributors and end users, and performs ongoing credit evaluations on its customers’ financial condition. The Company continuously monitors collections and payments from its customers and maintains a provision for estimated credit losses based upon historical experience and any specific customer collections issues that have been identified. While such credit losses have historically been within expectations and provisions established, there is no guarantee that the Company will continue to experience the same credit loss rates as in the past. Since the accounts receivable are concentrated in a relatively few number of customers, a significant change in liquidity or financial position of any one of these customers could have a material adverse impact on the collectibility of accounts receivable and future operating results.

Warranty Reserve

      The Company provides for the estimated cost of product warranties at the time products are shipped. Although the Company engages in extensive product quality programs and processes, its warranty obligation is affected by product failure rates and service delivery costs incurred to correct a product failure. Should actual

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Investments in and Advances to Affiliated Companies

      The Company has investments in affiliated companies related to areas of the Company’s strategic focus. The Company accounts for these investments using the equity method of accounting. In assessing the recoverability of these investments, the Company must make certain assumptions and judgments based upon changes in the Company’s overall business strategy, the financial condition of the affiliated companies, market conditions and the industry and economic environment in which the entities operate. Adverse changes in market conditions or poor operating results of affiliated companies could result in losses or an inability to recover the carrying value of the investments, thereby requiring an impairment charge in the future.

Goodwill, Intangible Assets, and Other Long-Lived Assets

      Intangible assets consist of: goodwill, intellectual property, licenses, and capitalized software. Other long-lived assets consist primarily of property, plant, and equipment. Intangible assets and property, plant, and equipment, excluding goodwill, are amortized using the straight-line method over their estimated useful life. The carrying value of goodwill and other intangible assets is reviewed on a quarterly basis for the existence of facts and circumstances both internally and externally that may suggest impairment. Factors which the Company considers important and that could trigger an impairment review, include significant underperformance relative to expected historical or projected future operating results and significant negative industry or economic trends. The Company determines whether an impairment has occurred based on gross expected future cash flows, and measures the amount of the impairment based on the related future discounted cash flows. The cash flow estimates used to determine impairment, if any, contain management’s best estimates, using appropriate and customary assumptions and projections at the time. Beginning in fiscal 2003, the Company adopted SFAS No. 142, “Goodwill and Other Intangible Assets.” As a result, the Company discontinued amortizing goodwill as of August 1, 2002 and adopted a policy to evaluate goodwill on an annual basis for potential impairment during the first quarter of each fiscal year, or at any time that events or changes in circumstances suggest that the carrying amount may not be recoverable from the estimated future cash flows.

Income Taxes

      The Company is required to estimate its income taxes in each of the jurisdictions within which it operates. This process involves assessing temporary differences resulting from different treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included within the balance sheet. The Company must then assess the likelihood that the deferred tax assets will be recovered from future taxable income and, to the extent that recovery is not more than likely, a valuation allowance must be established. To the extent a valuation allowance is established, the Company must include an expense within the tax provision in the statement of operations. In the event that actual results differ from these estimates, the provision for income taxes and results of operations could be materially impacted. The Company does not provide for US Federal income taxes on undistributed earnings of consolidated foreign subsidiaries as such earnings are intended to be indefinitely reinvested in those operations. Determination of the potential deferred income tax liability on these undistributed earnings is not practicable because such liability, if any, is dependent on circumstances existing if and when remittance occurs.

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Results of Operations

Fiscal 2004 Compared to Fiscal 2003

      Product revenue for fiscal 2004 was $327.1 million as compared with $442.4 million in fiscal 2003, a decrease of $115.3 million or 26%. The decrease in product revenue was primarily due to a reduction in sales of Security Technology Products of $175.8 million resulting from reduced sales of the EXACT systems and spare parts which the Company supplies to L-3 Communications. The reduced sales of security products were partially offset by increased sales of $60.5 million; $51.9 million of Medical Technology Products, a 23% increase over prior year’s revenue, and $8.6 million primarily related to embedded signal-processing products. The increase in Medical Technology Products revenue was due to an increase in revenues of Medical Imaging Products of $35.0 million, primarily due to increased sales of CT systems, DR systems and patient monitors. The increase was also attributable to approximately $2.5 million of revenue resulting from a payment received related to a multi-year, multi-million dollar OEM agreement that involves an annual minimum purchase commitment from the customer which had not been met in 2004; increased Camtronics revenues of $11.3 million, primarily due to the recognition in fiscal 2004 of prior period deferred revenue; and increased B-K Medical revenues of $5.6 million resulting from increased demand for ultrasound systems.

      Engineering revenue for fiscal 2004 was $20.1 million compared to $20.9 million in fiscal 2003, a decrease of $0.8 million or 4%. The decrease in engineering revenue was primarily due to a reduction in a customer funded project for digital X-ray systems, partially offset by a license of intellectual property of $1.8 million sold to the Company’s affiliate Shenzhen Anke High-Tech Co., Ltd. (“SAHCO”).

      Other revenue of $8.3 million and $8.4 million for fiscal 2004 and 2003, respectively, represents revenue from the Company’s hotel operation.

      Product gross margin was $131.2 million in fiscal 2004 compared to $186.1 million for the same period last year. Product gross margin as a percentage of product revenue was 40% and 42% for fiscal 2004 and 2003, respectively. The decrease in product gross margin percentage over the prior year was primarily attributable to lower sales of security technology products, which have higher margins than most of the Company’s other products. This decrease was partially offset by the benefit of approximately $2.5 million of margin guaranteed by an OEM customer.

      Engineering gross margin was $6.6 million in fiscal 2004 compared to $6.0 million in fiscal 2003. Engineering gross margin as a percentage of engineering revenue was 33% and 29% for the fiscal 2004 and 2003, respectively. The increase in engineering gross margin as a percentage of engineering revenue over the prior fiscal year was primarily due to the sale of a license of intellectual property to the Company’s affiliate SAHCO for $1.8 million with no corresponding cost, partially offset by additional costs incurred by the Company in connection with work currently being done on behalf of the Transportation Security Administration.

      Research and product development expenses were $58.7 million in fiscal 2004, or 17% of total revenue, compared to $55.1 million in fiscal 2003, or 12% of total revenue. The increase in research and product development expenses of $3.6 million was due to the Company continuing to focus resources on developing new generations of medical imaging equipment, including innovative CT systems for niche markets, advanced digital x-ray systems and subsystems for general radiography and mammography, and an extended family of multi-slice CT Data Acquisition Systems for both medical and security markets. The Company is testing prototypes of an automated, CT-based portal screening system that can scan carry-on baggage at airports, carry-in baggage at public buildings, and parcels for corporations and delivery services. In addition, the Company continues to increase its investment in a number of other development projects for security systems to meet diverse, evolving security needs in the United States and abroad.

      Selling and marketing expenses were $37.0 million in fiscal 2004, or 10% of total revenue, as compared to $34.9 million in fiscal 2003, or 7% of total revenue. The increase in selling and marketing expenses of $2.1 million was mainly attributable to salaries and related expenses of the Company’s newly established subsidiary, Anexa, and increased commission expenses attributable to the year over year increase in

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      General and administrative expenses were $39.2 million in fiscal 2004 or 11% of total revenue, compared to $35.0 million in fiscal 2003, or 7% of total revenue. The increase of $4.2 million was primarily attributable to incentive bonus and related payroll expenses of approximately $1.0 million, amortization of acquired intangible assets of $0.9 million, incremental cost of approximately $0.4 million related to acquired subsidiaries STI, and VMI Medical Inc., which were not included in the same period last year. The increase was also due to approximately $0.7 million related to programs initiated by the Company to comply with the Sarbanes-Oxley Act of 2002, approximately $0.8 million in accounting and legal expenses related to the restatement of the Company’s financial statements for fiscal years 2001, 2002, and the first three quarters of fiscal 2003, and approximately $1.1 million in additional facilities operating costs.

      Computer software costs of $4.8 million and $3.5 million were capitalized in fiscal 2004 and 2003, respectively. Amortization of capitalized software costs amounted to $1.8 million in both fiscal years 2004 and 2003, and is included in product cost of sales.

      Interest income for fiscal 2004 was $3.7 million compared to $5.0 million for fiscal 2003. The decrease of $1.3 million was primarily the result of a lower effective interest rate on short term investments and to a lesser extent to lower invested cash balances resulting primarily from the Company internally funding its new addition to its headquarters facility.

      The Company recorded equity income of $0.6 million related to equity in unconsolidated affiliates in fiscal 2004 compared to an equity loss of $3.5 million for fiscal 2003. The equity gain in fiscal 2004 consists of a gain of $1.2 million for the Company’s share of profit in Cedara Software Corporation, offset by a loss of $0.6 million for the Company’s share of losses in SAHCO. The equity loss of $3.5 million in fiscal 2003 consists primarily of losses of $2.5 million and $1.1 million reflecting the Company’s share of losses in Cedara Software Corporation and SAHCO, respectively.

      Other expense, consisting primarily of foreign currency exchange gains and losses, was $0.2 million in fiscal 2004 compared to other income of $5.8 million in fiscal 2003. Other income in fiscal 2003 included $3.9 million of currency exchange gain resulting from the weakening U.S. dollar, primarily due to a $1.8 million gain on U.S. dollar loans to the Company’s Danish subsidiary and a $2.1 million gain on U.S. dollar loans to Anrad, the Company’s Canadian subsidiary, and a $1.6 million gain from the sale of a building the Company owned in Peabody, Massachusetts to a related party.

      The effective tax rate for fiscal 2004 was 17% as compared to 36% for fiscal 2003. The decrease of 19% was primarily due to a relative increase in the estimated benefits from tax exempt interest, the extraterritorial income exclusion and research and development credits as a result of a lower dollar base of pre-tax income for fiscal 2004 when compared to fiscal 2003. In addition, the effective tax rate reflects a benefit resulting from the release of the German valuation allowance reflecting net operating loss carryforwards which management has determined are more likely than not to be realized.

      Net income for fiscal 2004 was $8.4 million compared to $49.5 million in fiscal 2003. Basic earnings per share were $0.62 in fiscal 2004 compared to $3.74 in fiscal 2003. Diluted earnings per share were $0.62 in fiscal 2004 compared to $3.70 in fiscal 2003. The decrease in net income over the prior year was primarily the result of decreased revenue and profit derived from the sale of the EXACT systems, partially offset by increased revenue and profit of Medical Technology Products, including the deferred revenue and profit recognized in fiscal 2004 by Camtronics.

Fiscal 2003 Compared to Fiscal 2002

      Product revenue for fiscal 2003 was $442.4 million as compared with $268.8 million in fiscal 2002, an increase of $173.6 million or 65%. The increase was primarily due to an increase of $171.6 million in sales of Security Technology Products for sales of EXACT systems and spare parts, primarily to L-3. The increase in Medical Technology Products revenues of $12.5 million was primarily offset by a decrease in revenues of $10.5 million attributable to reduced demand for embedded multiprocessing equipment. The increase in Medical Technology Product revenue was the result of $8.6 million of increased sales by Camtronics of

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      Engineering revenue for fiscal 2003 was $20.9 million compared to $26.5 million in fiscal 2002, a decrease of 21%. The decrease in engineering revenue was primarily due to a decrease in customer funded projects for developing medical and security equipment.

      Other revenue of $8.4 million and $9.6 million for fiscal 2003 and 2002, respectively represent revenue from the Company’s hotel operation. The decrease in revenues is mostly the result of lower occupancy.

      Cost of product sales was $256.3 million in fiscal 2003 compared to $169.0 in fiscal 2002. Cost of product sales as a percentage of revenue was 58% in fiscal 2003, compared to 63% in fiscal 2002. The decrease in cost of product sales percentage over prior year was primarily attributable to the increase sales of security technology products, which have lower cost of sales then most of the Company’s other products.

      Cost of engineering sales was $14.9 million in fiscal 2003 compared with $23.2 million in fiscal 2002. The total cost of engineering sales as a percentage of engineering revenue decreased to 71% in fiscal 2003, 88% in fiscal 2002. This percentage decrease was primarily attributable to license revenue recognized in fiscal 2003 for which there was no associated cost.

      Other costs of sales were $4.7 million and $5.2 million from the Company’s hotel operation for fiscal 2003 and 2002, respectively.

      Research and product development expenses were $55.1 million in fiscal 2003, or 12% of total revenue, compared to $39.1 million in fiscal 2002, or 13% of total revenue. The increase in research and product development expenses of $16.0 million was due to the Company continuing to focus substantial resources in developing new generations of medical imaging equipment, including innovative CT systems for niche markets, and advanced digital x-ray systems and subsystems for general radiography and mammography, and an extended family of multi-slice CT Data Acquisition Systems for both medical and security markets. In addition, the Company is developing security systems for a variety of applications. The Company is in the initial stages of testing prototypes of automated, CT-based portal screening system that can scan carry-on baggage at airports, “carry-in” baggage at public buildings, and parcels for corporations and delivery services. In addition, the Company continues to increase its investment in a number of other development projects to meet diverse, evolving security need in the United States and abroad.

      Selling and marketing expenses were $34.9 million in fiscal 2003, or 7% of total revenue, as compared to $32.4 million in fiscal 2002, or 11% of total revenue. The increase in selling and marketing expense of $2.5 million was mainly attributable to exchange rate differential for our B-K Medical subsidiary in Denmark.

      General and administration expenses were $35.0 million in fiscal 2003, or 7% of total revenue, compared to $28.4 million in fiscal 2002 or 9% of total revenue. The increase of $6.6 million was primarily attributable to increased salaries and related payroll expenses of approximately $1.3 million, amortization of approximately $2.1 million related to acquired intangible assets, and approximately $1.3 million related to incremental costs due the acquisition of Sound Technology Inc. and VMI Medical, Inc. Also, included in general and administrative expenses was a provision for bad debt of approximately $2.4 million, of which $1.6 million related to certain old invoices of SAHCO, and approximately $0.7 million for an unsecured note, all of which the Company deemed uncollectible.

      Computer software costs of $3.5 million and $2.4 million were capitalized in fiscal 2003 and 2002 respectively. Amortization of capitalized software costs amounted to $1.8 million in both fiscal 2003 and 2002, and is included in the product cost of sales.

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      Interest income for fiscal 2003 was $5.0 million compared to $4.4 million for fiscal 2002. The increase of $0.6 million was primarily the result of higher invested cash balances partially offset by lower effective interest rate on short term investments.

      The Company recorded a loss of $3.5 million relates to equity in unconsolidated affiliates in fiscal 2003 compared to a loss of $0.2 million for fiscal 2002. The equity loss in fiscal 2003 consists primarily of losses of $1.1 million and $2.5 million reflecting the Company’s share of losses in SAHCO and Cedara Software Corporation, respectively. The equity loss in fiscal 2002 consists of a gain of $1.4 million reflecting the Company’s share of gains in Enhanced CT Technology LLC, partially offset by equity losses of $1.3 million and $0.2 million reflecting the Company’s share of losses in SAHCO and Cedara Software Corporation, respectively.

      Other income was $5.8 million in fiscal 2003, compared with $0.8 in fiscal 2002. Other income in fiscal 2003 includes $3.9 million of currency exchange gain resulting from the weakening U.S. dollars, primarily due to $1.8 million gain on U.S. dollar loans to the Company’s Danish subsidiary, and a $2.1 million gain on U.S. dollar loans to Anrad, the Company’s Canadian subsidiary, and $1.6 million gain from the sale of a building the Company owned in Peabody, Massachusetts to a related party.

      The effective tax rate for fiscal 2003 was 36% compared to 19% in fiscal 2002. The increase was due primarily to the lower impact related to the benefit realized from tax exempt interest and extraterritorial income benefit on a higher pre-tax income when compared to 2002.

      Net income for fiscal 2003 was $49.5 million compared to $2.7 million in fiscal 2002. Basic earnings per share were $3.74 compared to $0.20 in fiscal 2002. Diluted earnings per share were $3.70 in fiscal 2003 compared to $0.20 in fiscal 2002. The increase in net income over the prior year’s period was primarily the result of increased revenue and profit derived from the sale of EXACT systems. The prior year’s income included a pre-tax asset impairment charge of $8.9 million related to the write down of certain assets of the Company’s telecommunications subsidiary, Anatel, and the Company’s Test and Measurement Division.

Liquidity and Capital Resources

      Cash and cash equivalents and marketable securities totaled $176.6 million and $178.0 million at July 31, 2004 and 2003, respectively. Working capital was $245.9 million and $246.3 million at July 31, 2004 and 2003, respectively. The Company’s balance sheet reflects a current ratio of 4.0 to 1 at July 31, 2004 compared to 3.7 to 1 at July 31, 2003. Liquidity is sustained principally through funds provided from operations, with short-term time deposits and marketable securities available to provide additional sources of cash.

      The Company faces exposure to financial market risks, including adverse movements in foreign currency exchange rates and changes in interest rates. These exposures may change over time as business practices evolve and could have a material adverse impact on the Company’s financial results. The Company’s primary exposure has been related to local currency revenue and operating expenses in Canada and Europe.

      The carrying amounts reflected in the consolidated balance sheets of cash and cash equivalents, trade receivables, and trade payables approximate fair value at July 31, 2004 due to the short maturities of these instruments.

      The Company maintains a bond investment portfolio of various issuers, types, and maturities. This portfolio is classified on the balance sheet as either cash and cash equivalents or marketable securities, depending on the lengths of time to maturity from original purchase. Cash equivalents include all highly liquid investments with maturities of three months or less from the time of purchase. Investments having maturities from the time of purchase in excess of three months are stated at amortized cost, which approximates fair value, and are classified as available for sale. A rise in interest rates could have an adverse impact on the fair value of the Company’s investment portfolio. The Company does not currently hedge these interest rate exposures.

      Net cash provided by operating activities was $33.2 million in fiscal 2004, $35.4 million in fiscal 2003 and $94.8 million in fiscal 2002. The decrease in cash flows from operations in fiscal 2004 over fiscal 2003 of

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      Net cash used for investing activities was $15.2 million in fiscal 2004, compared to $18.1 million in fiscal 2003 and $15.0 million in fiscal 2002. The decrease in net cash used for investment activities of $2.9 million was primarily due to lower funds used in the acquisition of businesses and assets, partially offset by an increase in capital expenditures, primarily for the Company’s new addition to its headquarters facility.

      Net cash used for financing activities was $5.5 million and $3.1 million in fiscal years 2004 and 2002, respectively. Net cash provided by financing activities was $0.8 million in fiscal 2003. The net cash used for financing activities in fiscal 2004 consisted primarily of the pay-off of a long term mortgage loan of $3.9 million, and dividend payments of $4.3 million, partially offset by cash received from the issuance of stock pursuant to exercise of stock options and employee stock purchase plan of $3.9 million.

      The Company’s contractual obligations at July 31, 2004, and the effect such obligations are expected to have on liquidity and cash flows in future periods are as follows: