AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 8, 1999
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------

FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------------

ROBOTIC VISION SYSTEMS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

DELAWARE 3823 11-2400145
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)

5 SHAWMUT ROAD
CANTON, MASSACHUSETTS 02021
(781) 821-0830
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)

-------------------------

PAT V. COSTA
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
ROBOTIC VISION SYSTEMS, INC.
5 SHAWMUT ROAD
CANTON, MASSACHUSETTS 02021
(781) 821-0830
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)

-------------------------

COPIES OF ALL COMMUNICATIONS AND NOTICES TO:

IRA I. ROXLAND, ESQ.
COOPERMAN LEVITT WINIKOFF LESTER & NEWMAN, P.C.
800 THIRD AVENUE
NEW YORK, NEW YORK 10022
TEL: (212) 688-7000
FAX: (212) 755-2839
-------------------------

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, please check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
2

-------------------------

CALCULATION OF REGISTRATION FEE

- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
TITLE OF EACH CLASS OF AMOUNT TO PROPOSED MAXIMUM OFFERING PROPOSED MAXIMUM
SECURITIES TO BE REGISTERED BE REGISTERED PRICE PER UNIT(1) AGGREGATE OFFERING PRICE(1)
- -------------------------------------------------------------------------------------------------------------------

Common stock, $.01 par value...... 1,063,593 $4.00 $4,254,372
- -------------------------------------------------------------------------------------------------------------------
Common stock, $.01 par value,
issuable upon the exercise of
common stock purchase
warrants........................ 3,090,907(2) $4.02 $12,425,446
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Common stock, $.01 par value,
issuable on the exercise of
incentive common stock purchase
warrants........................ 750,000(2) $4.02 $3,015,000
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Common stock, $.01 par value,
issuable upon the exercise of
common stock purchase
warrants........................ 150,000(2) $5.00 $750,000
- -------------------------------------------------------------------------------------------------------------------
Total....................
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------

- ---------------------------------- -----------------------
- ---------------------------------- -----------------------
TITLE OF EACH CLASS OF AMOUNT OF
SECURITIES TO BE REGISTERED REGISTRATION FEE(1)
- ---------------------------------- -----------------------

Common stock, $.01 par value...... $1,182.72
- -----------------------------------------------------------------------------------
Common stock, $.01 par value,
issuable upon the exercise of
common stock purchase
warrants........................ $3,454.27
- -----------------------------------------------------------------------------------------------------------
Common stock, $.01 par value,
issuable on the exercise of
incentive common stock purchase
warrants........................ $838.17
- -------------------------------------------------------------------------------------------------------------------
Common stock, $.01 par value,
issuable upon the exercise of
common stock purchase
warrants........................ $208.50
- -------------------------------------------------------------------------------------------------------------------
Total.................... $5,683.66
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------

(1) Estimated solely for the purpose of calculating the registration fee based
upon the average of the high and low price of our common stock, $.01 par
value, on the Nasdaq National Market on September 1, 1999.

(2) Pursuant to Rule 416, the number of shares to be registered hereunder is
subject to adjustment to prevent dilution resulting from stock splits, stock
dividends and similar transactions.
-------------------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
3

THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. THE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PRELIMINARY
PROSPECTUS IS NOT AN OFFER TO SELL NOR DOES IT SEEK AN OFFER TO BUY THESE
SECURITIES IN ANY JURISDICTION WHERE THE SALE IS NOT PERMITTED.

SUBJECT TO COMPLETION

PRELIMINARY PROSPECTUS DATED SEPTEMBER 8, 1999

PROSPECTUS

ROBOTIC VISION SYSTEMS, INC.
5,054,500 shares of Common Stock

The shares covered by this prospectus represent in excess of 18% of our
currently outstanding shares of common stock. The selling stockholders named on
page 37 of this prospectus may offer all of these shares for sale. We will
receive none of the proceeds from any of these sales.

-------------------------

Our common stock is traded on the Nasdaq National Market under the symbol
ROBV. The closing price of our common stock on September 1, 1999 was $3.97 per
share.

-------------------------

PLEASE READ THE RISK FACTORS BEGINNING ON PAGE 4 OF THIS PROSPECTUS BEFORE
MAKING A DECISION TO INVEST IN OUR SECURITIES.

-------------------------

Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. It is illegal for any person to tell you
otherwise.

-------------------------

September , 1999
4

TABLE OF CONTENTS

PAGE
----

Summary......................... 2
Risk Factors.................... 4
Market Information.............. 7
Dividend Policy................. 7
Selected Consolidated Financial
Data.......................... 8
Management's Discussion and
Analysis of Financial
Condition and Results of
Operations.................... 9
Business........................ 20

PAGE
----

Management...................... 25
Principal Stockholders.......... 31
Description of Our Securities... 33
Selling Stockholders............ 37
Legal Matters................... 39
Experts......................... 39
Available Information........... 40
Index to Consolidated Financial
Statements.................... F-1

1
5

SUMMARY

The following summary highlights selected information from this prospectus
and may not contain all the information that is important to you. To understand
our business and this offering fully, you should read this entire prospectus
carefully, including the Risk Factors and the consolidated financial statements
and accompanying notes.

OUR BUSINESS

We design, manufacture and sell products and systems that do the following:

- automate the inspection of semiconductors and semiconductor packages

- provide machine-vision-based scrutiny of a broad range of commercial and
industrial products where high volume quality assurance can best be
accomplished by computer-based inspection

- read two-dimensional bar codes of any size or complexity on virtually any
surface

- accurately scan and record bar code labels on packages moving at high
speeds

- provide specialty lighting for machine vision applications

Collectively, these capabilities give computers the power of sight.

Our products range from state-of-the-art machine vision systems on a
circuit board, which are priced at under $10,000, to $500,000 wafer inspection
systems with fully automated output capabilities. Certain of our products are
sold by our own sales force; other products are sold either through
manufacturers' representatives or to original equipment manufacturers for
incorporation into customized systems.

We operate our business through our semiconductor equipment group
principally located in Hauppauge, New York, with additional facilities in
Arizona and Wisconsin, and through our Acuity CiMatrix division located in
Canton, Massachusetts.

OUR HISTORY

We were incorporated in New York in 1976 and reincorporated in Delaware in
1977. Our executive offices are located at 5 Shawmut Road, Canton, Massachusetts
02021; our telephone number is (781) 821-0830.

THE OFFERING

Common stock offered for sale by the selling
stockholders............................................. 5,054,500 shares(1)
Common stock to be outstanding after offering.............. 31,328,240 shares(2)

- -------------------------

(1) Represents the maximum number of shares covered by this prospectus. See
Description of our Securities and Selling Stockholders.

(2) This number assumes the exercise of 3,990,907 warrants issued in April 1999
and July 1999, respectively. This number excludes 3,559,871, 1,858,948 and
3,927,410 shares of our common stock issuable as of September 1, 1999 upon
exercise of then outstanding prepaid warrants, other warrants and options
under our stock option plans, respectively. An additional 937,007 shares are
reserved for future grants under our stock option plans.
2
6

USE OF PROCEEDS

We will not receive any proceeds from the sale of the common stock offered
by the selling stockholders. We will receive the proceeds from the exercise of
the incentive and other warrants, which will amount to $16,190,446 if all of
these warrants are exercised. We intend to apply any net proceeds for working
capital and other general corporate purposes.

SUMMARY CONSOLIDATED FINANCIAL DATA

You should read the following summary consolidated financial data in
conjunction with the audited consolidated financial statements and the unaudited
consolidated financial statements, and their accompanying notes, which are
contained elsewhere in this prospectus. You should also read Selected
Consolidated Financial Data and Management's Discussion and Analysis of
Financial Condition and Results of Operations, which are both contained
elsewhere in this prospectus.

STATEMENT OF OPERATIONS DATA:
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

NINE MONTHS
ENDED
FISCAL YEAR ENDED SEPTEMBER 30, JUNE 30,
---------------------------------------------------- ------------------
1994 1995 1996 1997 1998 1998 1999
-------- -------- -------- -------- -------- -------- -------

Revenues................... $102,056 $145,415 $153,975 $169,342 $169,007 $140,605 $87,959
Income (loss) before income
taxes.................... $ 2,853 $ 12,092 $ (319) $ 1,393 $(40,505) $(17,454) $(9,545)
Provision (benefit) for
income taxes............. $ 1 $ (56) $ (1,154) $ 745 $ -- $ 108 $ --
Net income (loss).......... $ 2,852 $ 12,148 $ 835 $ 648 $(40,505) $(17,562) $(9,545)
Premium on prepaid
warrant.................. $ -- $ -- $ -- $ -- $ -- $ -- $ 270
Net income (loss)
attributable to common
stockholders............. $ 2,852 $ 12,148 $ 835 $ 648 $(40,505) $(17,562) $(9,815)
Basic net income (loss) per
share.................... $ 0.16 $ 0.65 $ 0.04 $ 0.03 $ (1.65) $ (0.72) $ (0.39)
Diluted net income (loss)
per share................ $ 0.15 $ 0.58 $ 0.04 $ 0.03 $ (1.65) $ (0.72) $ (0.39)

SELECTED BALANCE SHEET DATA:
(IN THOUSANDS)

AT SEPTEMBER 30,
-------------------------------------------------- AT JUNE 30,
1994 1995 1996 1997 1998 1999
------- ------- -------- -------- -------- ------------

Total assets........... $50,410 $83,520 $107,471 $139,923 $121,571 $112,150
Current assets......... $40,867 $71,755 $ 88,370 $110,541 $ 72,227 $ 66,022
Long term debt and
other................ $ 2,341 $ 1,242 $ 492 $ 6,414 $ 3,059 $ 2,932
Total liabilities...... $33,459 $39,171 $ 43,858 $ 64,346 $ 84,774 $ 72,367
Stockholders equity.... $16,951 $44,349 $ 63,613 $ 75,577 $ 36,797 $ 30,870
Working capital
(deficit)............ $10,853 $34,590 $ 45,751 $ 55,159 $ (9,488) $ (3,413)

3
7

RISK FACTORS

Before you invest in our common stock, you should be aware that there are
various risks, including those described below. You should carefully consider
these risk factors together with all other information included in this
prospectus, before you decide whether to purchase shares of our common stock.

OUR RETURN TO PROFITABLE OPERATIONS CANNOT BE ASSURED

We incurred net operating losses of $9,545,000 for the nine month fiscal
period ended June 30, 1999 and $40,505,000 for the fiscal year ended September
30, 1998, primarily attributable to the worldwide downturn in demand for
semiconductor capital equipment which began in March 1998. Our working capital
deficit at these dates was $3,413,000 and $9,488,000, respectively. We had
operated profitably for at least five continuous years prior to the onset of
this downturn. Our return to profitable operations will depend upon our ability
to increase our revenues or making further significant reductions in our costs.
There can be no assurance that we will return to profitability.

WE EXPECT OUR REVENUES AND EARNINGS TO REMAIN BELOW THEIR HISTORICAL LEVELS FOR
THE DURATION OF THE MOST RECENT DOWNTURN IN WORLDWIDE DEMAND FOR SEMICONDUCTOR
CAPITAL EQUIPMENT

The semiconductor industry has historically experienced significant market
fluctuations and periodic downturns. The demand for semiconductor capital
equipment, including our lead inspection systems, is presently quite low
compared to 1997 and early 1998 levels. Reduced demand adversely affects our
revenues and earnings. Until semiconductor industry conditions improve, our
revenues and earnings will continue to be adversely affected.

OUR INABILITY TO ACCURATELY ASSESS OUR FUTURE ORDER LEVELS MAY RESULT IN EXCESS
INVENTORY CHARGES

Sudden and unexpected downturns in worldwide demand for semiconductor
capital equipment which have historically characterized the semiconductor
industry makes it difficult for us to accurately assess anticipated order rates
for our lead inspection systems for more than three to six months ahead at any
given time. Our inability to project future orders has previously resulted in
our accumulation of excessive inventories of raw materials and supplies, as well
as finished products, as we ramped up production in anticipation of order levels
that failed to materialize, thereby requiring us to subsequently reduce the
carrying value of our inventories. By way of illustration, we were compelled to
reduce our inventory carrying value by approximately $16.5 million for the
fiscal year ended September 30, 1998 as a consequence of an industry downturn
which unexpectedly began in March 1998. Further, we must utilize our cash
resources to build inventories in anticipation of customer orders, which
thereafter may not be replenished in the absence of sales revenues. Any future
downturn in industry demand for our products that we are unable to anticipate
may again place us in a position of excessive inventories and cash flow
constraints.

WE WILL BE IN DEFAULT IF WE DO NOT REPAY OR REPLACE OUR BANKS BY MARCH 18, 2000

We owed approximately $35.3 million to our banks as of June 30, 1999. This
indebtedness is secured by substantially all of our assets. We have not been in
compliance with certain of the financial covenants contained in our agreement
with our banks for much of the past 18 months. This has required us to
periodically request waivers of these covenants. While our financing agreement
has recently been amended to conform its financial covenants to reflect our
current operating plans and we are currently in

4
8

compliance with its provisions, we cannot be certain that we will remain in
compliance for the balance of its term. We must either repay our total bank
indebtedness prior to March 18, 2000, negotiate an extension of our bank credit
facility or obtain replacement financing. We cannot assure investors that we
will be able to do so. Our inability to repay or replace this indebtedness will
permit our banks to declare us in default, which would facilitate their possible
seizure of our assets. Further, our cash resources following default would be
severely constrained, thereby limiting our ability to acquire raw materials and
supplies to satisfy orders for our products and reducing the likelihood that we
could sustain our operations at their pre-default levels.

WE HAVE A LIMITED NUMBER OF CUSTOMERS, WHICH MAY NOT BE EASILY REPLACEABLE

Our sales have been historically concentrated in a small number of
customers. The specific customers change over time. Sales to Intel accounted for
approximately 5%, 20% and 23%, respectively, of our revenues during the nine
months ended June 30, 1999 and the fiscal years ended September 30, 1998 and
1997. No other customers accounted for more than 10% of sales during such fiscal
periods. The loss or any significant reduction in Intel's orders for our
products, combined with our inability to replace such orders with those from new
or existing customers, may reduce both our revenues and profitability.

ECONOMIC DIFFICULTIES ENCOUNTERED BY CERTAIN OF OUR FOREIGN CUSTOMERS HAVE
RESULTED IN ORDER CANCELLATIONS AND REDUCED COLLECTIONS OF OUTSTANDING ACCOUNTS

International sales, primarily to Asia and Western Europe, accounted for
approximately 52% and 64% of our revenues for the nine months ended June 30,
1999 and the fiscal year ended September 30, 1998, respectively. In particular,
sales to Taiwan, Korea and other Asian countries accounted for 35% and 54% of
our revenues for the nine months ended June 30, 1999 and the fiscal year ended
September 30, 1998, respectively. While our sales in Asia are generally
denominated in U.S. dollars, our international business may be affected by
changes in demand resulting from fluctuations in currency exchange rates, trade
restrictions and duties, and other political and economic factors. The recent
Asian economic crisis led to significant order cancellations from customers in
Taiwan, Korea, Malaysia and the Phillipines as devaluations of as much as 90% in
their respective local currencies prevented these customers from acquiring U.S.
dollars at favorable exchange rates to pay us for these orders, thereby
adversely affecting both our revenue levels and profitability.

"SHORT" SALES BY HOLDERS OF PREPAID WARRANTS MAY CAUSE THE MARKET PRICE OF OUR
COMMON STOCK TO GO DOWN

The holders of our prepaid warrants may seek to realize a profit by selling
shares of our common stock "short", i.e., selling shares which they do not
actually own at the time of sale, thereby exerting downward pressure on the
market price of the common stock, with the expectation of being able to buy
shares at a lower price prior to having to deliver such shares to the buyer,
thereby profiting by the difference between the selling price of the shares and
the anticipated lower purchase price. While the holders assume the risk of an
upward rather than a downward movement in the price of our common stock at the
time they would be required to buy shares to cover their "short" position, they
can contain the extent of their possible losses from such an upward movement by
exercising their prepaid warrants to acquire shares for this purpose.

5
9

PREPAID WARRANT EXERCISES MAY CAUSE SUBSTANTIAL DILUTION

The number of shares of common stock that we are required to issue upon
exercise of our prepaid warrants is determined by taking the lower of $4.02 or
95% of the average of the bid price of our common stock during a minimum 20-day
trading period prior to exercise. Accordingly, if the market price of our common
stock should be significantly below $4.02 at the time of exercise, the number of
shares of common stock issuable upon the prepaid warrants' exercise could be
significant. By way of illustration, at a market price of $4.02 per share, the
holders of the prepaid warrants, collectively, could acquire an aggregate of
2,736,319 shares of our common stock, or approximately a 9.1% equity interest in
RVSI based upon our currently outstanding shares of Common Stock. If, however,
the market price of our Common Stock was $2.50, $2.00 or $1.50 per share, the
number of shares issuable to the holders of the prepaid warrants upon exercise
would aggregate 4,400,000, 5,500,000 or 7,333,334, respectively, representing
equity interests in RVSI of 13.9%, 16.7% or 21.2%, respectively. At September 1,
1999, the aggregate number of shares of our common stock issuable upon exercise
of the prepaid warrants would have been 3,559,871, based upon an assumed
exercise price of $3.09 per share, representing 95% of the average of the three
lowest closing bid prices of our common stock during the 20-day trading period
ending on that date. There is no limitation upon the number of shares issuable
upon exercise of the prepaid warrants.

THE LARGE NUMBER OF SHARES ISSUABLE UPON EXERCISE OF WARRANTS COULD ADVERSELY
AFFECT THE PRICE OF OUR COMMON STOCK AS WELL AS RESULT IN A CHANGE IN OUR
CONTROL

A substantial number of shares of our common stock are issuable upon
exercise of our prepaid and incentive warrants. All of the shares of our common
stock underlying the prepaid warrants, as well as approximately 1,500,000 shares
of our common stock issuable upon exercise of certain incentive and other
warrants, have been registered under the Securities Act, thereby permitting
exercising warrantholders to publicly offer these shares for sale. A further
3,990,907 shares of our common stock, representing shares issuable upon exercise
of certain incentive and other warrants, are covered by this prospectus. Future
sales of any of these shares, or the anticipation of such sales, could adversely
affect the market price of our common stock and could materially impair our
future ability to raise capital through an offering of equity securities.
Further, any issuance of a substantial number of our shares upon exercise of
prepaid warrants could result in a change in our control if the exercising
warrant holders were to retain rather than sell their respective shares.

INADEQUATE CASH FLOW AND RESTRICTIONS IN OUR BANKING ARRANGEMENTS MAY PREVENT US
FROM INVESTING SUFFICIENT FUNDS IN RESEARCH AND DEVELOPMENT TO REMAIN
COMPETITIVE

The markets for our products are extremely competitive. Maintaining our
competitive position will require our continued investment in research and
product development. Our ability to make such investment may be limited by our
cash flow availability and by our need to comply with covenants in our banking
arrangements that may limit our research and product development expenditures.

OUR SUCCESS IS DEPENDENT ON OUR KEY PERSONNEL WHO WE MAY NOT BE ABLE TO RETAIN
AND WE MAY NOT BE ABLE TO HIRE ENOUGH ADDITIONAL PERSONNEL TO MEET OUR NEEDS

Our success depends in large part upon our ability to hire and retain
qualified technical and management personnel. We have a limited number of
employment agreements with our technical and management personnel. Hiring
replacement or additional employees with the combination of skills and
attributes required to carry out our

6
10

needs is extremely competitive. Our inability to hire and retain such personnel
could materially adversely effect our growth and profitability.

SYSTEM FAILURES OR MISCALCULATIONS ATTRIBUTABLE TO THE YEAR 2000 ISSUE COULD
DISRUPT OUR OPERATIONS

The Year 2000 issue is the result of computer programs only being able to
use two digits rather than four to define the applicable year. Thus,
date-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. System failure or miscalculation, whether in our internal
operating systems or our products or those of our third party vendors or
suppliers, could result in our inability to process transactions, send invoices,
accept customer orders or timely provide customers with products and services.

FORWARD-LOOKING STATEMENTS FOUND IN THIS PROSPECTUS MAY NOT BE ACCURATE
INDICATORS OF OUR FUTURE PERFORMANCE

This prospectus contains certain forward-looking statements and information
relating to our business. We have identified forward-looking statements in this
prospectus using words such as "believes," "intends," "expects," "predicts,"
"may," "will," "should," "contemplates," "anticipates," or similar statements.
These statements are based on our beliefs as well as assumptions we made using
information currently available to us. Because these statements reflect our
current views concerning future events, these statements involve certain risks,
uncertainties and assumptions. Actual future results may differ significantly
from the results discussed in the forward-looking statements.

MARKET INFORMATION

Our common stock is quoted on the Nasdaq National Market under the symbol
ROBV. The following table sets forth the high and low closing prices for our
common stock for the periods indicated:

FISCAL QUARTER ENDED HIGH LOW
- -------------------- ---- ---

September 30, 1999 (through September 1,
1999)......................................... $ 5 3/4 $ 3 5/16
June 30, 1999................................... 3 25/32 1 31/32
March 31, 1999.................................. 3 15/16 2 5/16
December 31, 1998............................... 4 1/2 2 1/8
September 30, 1998.............................. 4 7/8 2
June 30, 1998................................... 12 3/4 3 1/2
March 31, 1998.................................. 14 3/8 10
December 31, 1997............................... 17 1/2 10 1/4
September 30, 1997.............................. 16 7/8 11 3/4
June 30, 1997................................... 11 7/8 8 3/8
March 31, 1997.................................. 18 1/4 10 3/4
December 31, 1996............................... 15 3/8 10

DIVIDEND POLICY

We have never paid any cash dividends and intend, for the foreseeable
future, to retain any future earnings for the development of our business. Our
bank credit agreement restricts our ability to pay dividends. Our future
dividend policy will be determined by our board of directors on the basis of
various factors, including our results of operations and financial condition.

7
11

SELECTED CONSOLIDATED FINANCIAL DATA

The following selected consolidated financial data below should be read in
conjunction with our consolidated financial statements and the accompanying
notes and Management's Discussion and Analysis of Financial Condition and
Results of Operations, both elsewhere in this prospectus. The data as of
September 30, 1998 and 1997 and for each of the three years in the period ended
September 30, 1998 have been derived from, and should be read in conjunction
with, our audited consolidated financial statements and accompanying notes,
which are contained elsewhere in this prospectus. The data as of September 30,
1996, 1995 and 1994 and for each of the two years in the period ended September
30, 1995 have been derived from our audited financial statements which are not
contained in this prospectus. The data as of June 30, 1999 and for the nine
months ended June 30, 1999 and 1998 have been derived from our unaudited
consolidated financial statements and accompanying notes, which are contained
elsewhere in this prospectus. We believe that the unaudited consolidated
financial statements include all adjustments, consisting only of normal
recurring adjustments, that we consider necessary for a fair presentation of the
financial information contained in such financial statements. Our results of
operations for the nine months ended June 30, 1999 are not necessarily
indicative of our results of operations for the entire year.

STATEMENT OF OPERATIONS DATA:
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

NINE
MONTHS ENDED
FISCAL YEAR ENDED SEPTEMBER 30, JUNE 30,
---------------------------------------------------- ------------------
1994 1995 1996 1997 1998 1998 1999
-------- -------- -------- -------- -------- -------- -------

SELECTED BALANCE SHEET DATA:
(IN THOUSANDS)

AT SEPTEMBER 30,
-------------------------------------------------- AT JUNE 30,
1994 1995 1996 1997 1998 1999
------- ------- -------- -------- -------- ---------------

Total assets............. $50,410 $83,520 $107,471 $139,923 $121,571 $112,150
Current assets........... $40,867 $71,755 $ 88,370 $110,541 $ 72,227 $ 66,022
Long term debt and
other.................. $ 2,341 $ 1,242 $ 492 $ 6,414 $ 3,059 $ 2,932
Total liabilities........ $33,459 $39,171 $ 43,858 $ 64,346 $ 84,774 $ 72,367
Stockholders' equity..... $16,951 $44,349 $ 63,613 $ 75,577 $ 36,797 $ 30,870
Working capital
(deficit).............. $10,853 $34,590 $ 45,751 $ 55,159 $ (9,488) $ (3,413)

8
12

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

NINE MONTHS ENDED JUNE 30, 1998 AND 1999

Revenues were $31.3 million in the three months ended June 30, 1999
compared to $39.1 million in the three months ended June 30, 1998, a decline of
20.0%. The lower revenues year-to-year largely reflect the effect of the severe
semiconductor industry downturn which began in early calender 1998. In the three
months ended June 30, 1999, revenues for our Semiconductor Equipment Group were
29.5% less than the year earlier period and represented 64.4% of total revenue
compared to 73.0% of total revenues in the three months ended June 30, 1998.

Revenues for our Acuity CiMatrix division for 1-D and 2-D barcode reading and
machine vision products increased 5.5% from the same quarter in the prior year.
The quarterly increase in revenues for our Acuity CiMatrix division was a result
of more machine vision sales.

For the nine months ended June 30, 1999, revenues were approximately $88.0
million compared to $140.6 million for the nine months ended June 30, 1998, a
decline of 37.4%. Revenues for our Semiconductor Equipment Group were down 47.7%
and revenues for our Acuity CiMatrix division were down 7.9% from the year
earlier periods. Semiconductor equipment revenues declined year-to-year because
of the same factors that effected the quarterly results. The year-to-year
decline in revenues for our Acuity CiMatrix division was almost entirely a
result of lower revenues from European customers.

On a sequential basis, revenues of $31.3 million in the three months ended
June 30, 1999 were $4.0 million higher than revenues of $27.3 million in the
three months ended March 31, 1999. Increased levels of orders and shipments in
our Semiconductor Equipment Group accounted for a significant portion of the
increase.

The gross profit margin was 45.6% of revenues in the three months ended June 30,
1999 compared to 27.9% of revenues in the three months ended June 30, 1998. This
increase was largely as a result of the $4.5 million inventory writedown taken
in the third quarter of fiscal 1998. The gross profit margin, as a percentage of
revenues, for our Semiconductor Equipment Group increased to 38.6% of revenues
in the three months ended June 30, 1999 compared to 21.8% of revenues in the
three months ended June 30, 1998. Also, gross profit margin, as a percentage of
revenues increased for our Acuity CiMatrix Division to 48.9% compared to 38.2%
for the same period in the prior year.

For the nine months ended June 30, 1999, the gross profit margin was 44.0%
of revenues compared to 41.3% of revenues in the nine months ended June 30,
1998. This increase was largely as a result of the $4.5 million inventory
writedown taken in the third quarter of fiscal 1998.

Research and development expenses were $4.8 million, or 15.4% of revenues,
in the three months ended June 30, 1999, compared to $7.5 million, or 19.2% of
revenues, in the three months ended June 30, 1998. The lower level of expenses
reflects the combination of workforce reductions and other expense reductions
that we implemented over the past twelve months. We are continuing to invest
significant resources into new product development in both our Semiconductor
Equipment Group and our Acuity CiMatrix

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13

division. New product development efforts include expansion of our new machine
vision platform, Visionscape, as well as next generation semiconductor
inspection and component handling equipment. In the three months ended June 30,
1999, we capitalized $1.3 million in software development costs under Statement
of Financial Accounting Standards No. 86., compared to $ 1.8 million in the
three months ended June 30, 1998.

Research and development expenses were $15.3 million, or 17.4% of revenues,
in the nine months ended June 30, 1999 compared to $21.5 million, or 15.3% of
revenues, in the nine months ended June 30, 1998. Capitalized software
development costs in the nine months ended June 30, 1999 were $4.0 million
compared to $5.6 million in the nine months ended June 30, 1998.

Selling, general and administrative expenses were $11.2 million, or 35.9%
of revenues, in the three months ended June 30, 1999, compared to $15.7 million,
or 40.1% of revenues, in the three months ended June 30, 1998. The lower level
of expenses largely reflects the combination of the cost reduction steps taken
by us over the past twelve months and lower variable selling costs on the
decreased level of revenues. In addition, the absence of significant litigation
costs in the three months ended June 30,1999, compared to the year earlier
period, contributed to the decline in of expenses.

Selling, general and administrative expenses were $33.1 million, or 37.6%
of revenues, in the nine months ended June 30, 1999, compared to $46.2 million,
or 32.9% of revenues, in the nine months ended June 30, 1998. The year-to-year
reduction in expenses reflects our cost reduction steps taken over the past
twelve months, lower variable selling costs on lower revenues and the absence of
significant litigation costs which were incurred in the nine months ended June
30, 1998.

Sequentially, the combination of research and development and selling,
general and administrative expenses were $16.0 million in the three months ended
June 30, 1999, compared to $15.5 million in the three months ended March 31,
1999, an increase of $0.5 million in expenses. The increased level of expenses
were a result of increased variable selling expenses associated with the
increased sales and increased travel associated with the increased business.

Severance and other charges were $0.3 million for the three months ended
June 30, 1999, compared to $2.4 million in the three months ended June 30, 1998.
The current charges relate to reductions in personnel, particularly in Europe.
Year-to-date, severance and other charges were $0.3 million for the nine months
ended June 30, 1999, compared to $5.6 million in the nine months ended June 30,
1998. The prior years spending relates to the cost reduction steps taken to
lower our operating expenses. Amounts remaining from the prior years severance
and other charges are shown below:

LIABILITY LIABILITY
------------------ CASH ADDITIONAL -------------
SEPTEMBER 30, 1998 EXPENDITURES ACCRUAL JUNE 30, 1999
------------------ ------------ ---------- -------------

Severance payments to
employees..................... $1,384 $1,501 $305 $188
Costs for changes in Asia
distributors.................. 500 145 355
Costs to consolidate
Acuity/CiMatrix............... 215 215 -- --
Total....................... $2,099 $1,861 $305 $543

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Net interest expense was $1.0 million in the three months ended June 30,
1999, compared to $0.8 million in the three months ended June 30, 1998. The
increase in interest expense primarily reflects the higher interest rate on
borrowings in the three months ended June 30, 1999 as well as amortization of
$50,000 of value of prepaid warrants issued to the banks.

The gain on sale of assets in the nine months ended June 30, 1999 primarily
relates to the sale of our Aircraft Safety Division.

There was no tax provision in the three months ended June 30, 1999 or June
30, 1998, due to the loss for the periods.

We reported a net loss of $3.2 million for the three months ended June 30,
1999, compared to a net loss of $15.4 million, for the three months ended June
30, 1998. The net loss for the three months ended June 30, 1999 included a
charge related to severance costs of $0.3 million and a gain of $0.3 million
related to the sale of assets. In the three months ended June 30, 1998, the net
loss of $15.4 million included severance and other charges of $2.4 million.

FISCAL YEARS ENDED SEPTEMBER 30, 1998 AND 1997

Our revenues were $169.0 million for the fiscal year ended September 30,
1998, compared to $169.3 million for the fiscal year ended September 30, 1997.
Primarily as a result of a severe downturn in the semiconductor capital
equipment industry, our revenues declined from $53.8 million in the first
quarter of fiscal 1998 to a low of $28.4 million in the fourth quarter of fiscal
1998. Our semiconductor equipment group's operations were adversely affected by
a significant decline in orders, and cancellations of previously placed orders,
for semiconductor inspection and handling equipment. The weak semiconductor
industry conditions were largely a result of the Asian economic crisis and
excess industry capacity. In addition, revenues for our Acuity CiMatrix division
declined approximately 10% year-to-year, largely as a result of lower revenues
to customers in Asia and Europe.

Our gross profit margin, as a percentage of revenues, was 33.1% for the
fiscal year ended September 30, 1998, compared to a gross profit margin of 44.6%
of revenues for the fiscal year ended September 30, 1997. Our gross profit
margin for the fiscal year ended September 30, 1998 was reduced by a provision
for excess and obsolete inventories of $16.6 million, or 9.8% of revenues.
Exclusive of the inventory provisions in fiscal 1998 and 1999 gross profit
margin was 42.9% for the fiscal year ended September 30, 1998 and 45.4% for the
fiscal year ended September 30, 1997. The gross profit margin declined
sequentially in fiscal 1998 as result of proportionately high fixed
manufacturing costs relative to lower shipment levels, as well as the affect of
a lower margin product mix.

In the third and fourth quarters of fiscal 1998, we took provisions of $4.5
million and $12.1 million, respectively, for excess and obsolete inventories
primarily for our semiconductor inspection and handling equipment. These
provisions largely reflected reduced demand for older generation products as a
result of the severe semiconductor industry downturn. We believe that the
inventory provisions taken in fiscal 1998 have reduced the carrying value of
inventories to their appropriate net realizable value. The inventory balances at
September 30, 1998 and March 31, 1999, net of inventory provisions, contain
older generation products of approximately $4.5 million and $3.1 million,
respectively. However, there can be no assurance that we will not have to take
additional inventory provisions in the future based upon a number of factors
including changing

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business conditions, shortened product life cycles, the introduction of new
products, and the effect of new technologies.

During fiscal 1998, we took multiple steps to reduce our expenses and to
lower the level of revenues necessary for break-even results of operations.
These steps included a 10% workforce reduction in April 1998, a 15% workforce
reduction in June 1998 and an additional 16% workforce reduction in September
1998, as well as curtailing discretionary spending and capital expenditures. In
June 1998, we combined our Acuity 2-D machine vision operations with our
CiMatrix 1-D and 2-D barcode reading and data collection operations.

Primarily as a result of these steps, we took a total of $6.6 million in
charges in fiscal 1998. $3.8 million was recorded for severance payments to
approximately 350 terminated employees, all of whom were terminated prior to
September 30, 1998. The terminated employees represented all functions across
all of our operating divisions. Of the $3.8 million, approximately $2.4 million
was paid in cash to employees prior to September, 30, 1998. $1.5 million was
recorded for costs associated with changing distributors in Asia. The charge was
recorded in the quarter ended March 31, 1998. Of this charge, $1.0 million
represents the write-off of our investment in our bankrupt Korean distributor.
We terminated our business relationship with the distributor after it could no
longer meet its commitment to service our existing installed base of customers
in Korea nor meet our sales goals. The remaining charge represents termination
of the distributor of our product in Japan. The terms of an agreement to end our
business relationship with the Japanese distributor were reached at the end of
our second fiscal quarter. Under this agreement, we were to repurchase from the
distributor certain demonstration equipment used in selling our product and
settle outstanding commitments of the distributor. The approximately $0.5
million charge represents our liability under the agreement, net of the
realizable value of assets recovered from the Japanese distributor.

The charges also included a $1.1 million non-cash write-down of previously
capitalized software development costs associated with currently inactive
products and $0.2 million in costs associated with the consolidation of the
Acuity and CiMatrix operations. As a result of these measures, our research and
development expenses and selling, general and administrative expenses, combined,
were reduced from $23.0 million in the second quarter to $19.3 million in the
fourth quarter of fiscal 1998.

Our research and development expenses were $28.1 million, or 16.6% of
revenues, in fiscal 1998, compared to $25.5 million, or 15.0% of revenues, in
fiscal 1997. The higher level of research and development expenses reflected our
continued investment in new products, including new semiconductor inspection and
component handling systems, as well as new visual inspection and data collection
products. During fiscal 1998, we capitalized $7.4 million of its software
development costs, in accordance with SFAS No. 86, compared to $4.8 million in
fiscal 1997.

Our selling, general and administrative expenses were $58.9 million, or
34.8% of revenues, in fiscal 1998, compared to $48.3 million, or 28.5% of
revenues, in fiscal 1997. The year-to-year increase in expenses is largely
related to personnel additions to our sales and marketing organizations,
primarily in the first half of fiscal 1998. In addition, legal costs associated
with patent infringement and fraud litigation which we initiated against General
Scanning, now known as GSI Lumonics, and its View Engineering subsidiary were
$4.5 million in fiscal 1998.

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We incurred merger costs of $0.6 million in the first quarter of fiscal
1998 related to our acquisition of Vanguard Automation.

Net interest expense was $2.3 million in fiscal 1998 compared to $0.3
million in fiscal 1997. The increase in interest expense is a result of the
significantly higher level of bank borrowings in fiscal 1998. Proceeds from bank
borrowings during fiscal 1998 were primarily used to fund working capital
requirements and results of operations.

There was no tax provision in fiscal 1998 as a result of the loss for the
period. In fiscal 1997, we had a tax provision of $0.7 million relating to
minimum federal and state income taxes.

For fiscal 1998, we had a net loss of $40.5 million, or a loss of $1.65 per
share. The net loss for fiscal 1998 included inventory provisions of $16.6
million and unusual charges of $6.6 million. In fiscal 1997, we had net income
of $0.6 million, or $0.03 per share.

FISCAL YEARS ENDED SEPTEMBER 30, 1997 AND 1996

Our revenues of $169.3 million for the year ended September 30, 1997
represent an increase of $15.4 million or 10.0%, over revenues of $154.0 million
for the year ended September 30, 1996. The increase in revenues was primarily
attributable to increased shipments of our LS-3000 Series and GS-5000 Series
semiconductor lead inspection systems.

The gross profit margin for the fiscal year ended September 30, 1997 was
46%, as compared to 45% for the fiscal year ended September 30, 1996.

Continued development of our LS-3000 and GS-5000 series of lead scanning
systems, computerized visual inspection equipment, and barcode scanning and data
collection equipment, as well as the ID-1 aircraft wing ice detection system,
primarily accounted for $25.5 million in research and development expense, net
of capitalized software development costs, during the year ended September 30,
1997, as compared to $21.8 million during fiscal 1996. In our fiscal year ended
September 30, 1997, we capitalized $4.8 million of software development costs as
compared to $2.6 million over the comparable 1996 period in accordance with the
provisions of SFAS No. 86. Capitalized software development costs for the fiscal
year ended September 30, 1997 include $0.8 million of costs related to certain
acquired subsidiaries. These subsidiaries had not capitalized any software
development costs in prior years because prior to their respective acquisitions
by us, they had not utilized detailed program designs in the software
development process. In general, the software development costs incurred by
these subsidiaries between the time working models were available and the
related software projects were released to customers were not material.

Our selling, general and administrative costs of $48.3 million increased by
$3.4 million or 7.6%, for the year ended September 30, 1997 as compared to $44.9
million in the prior fiscal year, primarily as a result of increased marketing
and distribution costs. For the year ended September 30, 1997, our net interest
expense was $0.3 million compared to net interest income of $0.2 million in the
comparable period in 1996. The decrease is a result of using a significant
portion of our cash to finance growing accounts receivable and inventory as our
revenue increased.

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Our net income for the year ended September 30, 1997 was $0.6 million or
$0.03 per share, as compared to net income of $0.8 million, or $0.04, for the
year ended September 30, 1996.

During the fiscal year ended September 30, 1997, we recorded a net
provision for income taxes of $0.7 million. The current year provision primarily
relates to minimum federal and state income taxes which were partially offset by
a decrease in the valuation allowance relating to deferred tax assets which
emanated from a change in the legal structure of certain subsidiaries which
eliminated certain limitations on our utilization of net operating losses of
acquired subsidiaries. During the fiscal year ended September 30, 1996, we
recorded a net benefit from income taxes of $1.2 million. This benefit primarily
resulted from a decrease in the valuation allowance relating to deferred tax
assets which emanated from our profitable operations in fiscal 1996, and the
extent to which we substantiated projected future earnings.

Our net deferred tax assets at September 30, 1997 and 1996 of $8.8 million
and $8.1 million, respectively, are equivalent to the benefit to be derived from
net operating loss carryforwards, and net deductible temporary differences that
were expected to be utilized to offset future taxable income projected as of the
respective balance sheet dates. The valuation allowance as of September 30, 1997
relates primarily to net operating loss carryforwards and tax credit
carryforwards of Acuity and CiMatrix which are subject to annual limitations.

LIQUIDITY AND CAPITAL RESOURCES

Our cash balance increased $1.1 million, to $3.5 million, in the nine
months ended June 30, 1999, as a result of $8.1 million of net cash used in
operating activities, $5.6 million of net cash used for additions to plant and
equipment and software development costs, $4.8 million of net cash provided by
the sale of assets and $10.0 million of net cash provided by financing
activities.

The $8.1 million of net cash used in operating activities was largely a
result of the operating loss for the nine month period, after non-cash
depreciation and amortization charges, combined with the reduction in accounts
payable and accrued expenses. Accounts receivable decreased $2.6 million in the
nine months ended June 30,1999. Inventories declined $4.6 million in the nine
months ended June 30, 1999, primarily as a result of inventory reductions in our
semiconductor equipment group.

Our cash balance declined from $8.8 million at September 30, 1997 to $2.4
million at September 30, 1998, as a result of $18.7 million of net cash used in
operating activities, $9.1 million of net cash used for additions to plant and
equipment and $21.5 million of net cash provided by financing activities. The
$18.7 million of net cash used in operating activities was primarily a result of
the loss for the year, less non-cash depreciation and amortization charges.

Additions to plant and equipment were $1.5 million in the nine months ended
June 30, 1999, which were substantially below depreciation charges of $5.4
million in the period. Additions to software capitalization were $4.1 million in
the nine months ended June 30, 1999. During fiscal 1998, we had net additions to
plant and equipment of $9.1 million, which exceeded depreciation charges of $6.1
million. The additions to plant and equipment were primarily for equipment used
in research and development activities, as well as customer support activities.
Total depreciation and amortization charges for the nine

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months ended June 30, 1999 were $8.0 million compared to $5.5 million in the
same period in fiscal 1998 due to higher levels of fixed assets, capitalized
software and other intangibles during fiscal 1999 compared to the first half of
fiscal 1998.

Accounts payable were $18.8 million at June 30, 1999, as compared with
$21.4 million at September 30, 1998 and $23.3 million at September 30, 1997,
respectively. The reductions in accounts payable and accrued expenses, combined,
of $10.0 million in the nine months ended June 30, 1999, reflects the
combination of lower inventory purchases, cash paid for severance and other
charges, as well as a reduction of past due vendor balances. The reduction in
accounts payable in fiscal 1998 was a result of the significantly lower level of
inventory purchases made by us in the second half of fiscal 1998. As a result of
our negative cash flow from operations during fiscal 1998 and the nine months
ended June 30, 1999, we had a substantial portion of our accounts payable
balances which were beyond normal vendor payment terms at June 30, 1999.

We have a revolving credit agreement with three domestic banks which is
collateralized by substantially all of our domestic tangible and intangible
assets. Borrowings under the agreement currently bear interest at the prime
rate, plus two percent. At June 30, 1999, we had borrowings of $35.3 million
outstanding under our revolving credit agreement with our domestic banks,
compared to $37.5 million in borrowings outstanding at September 30, 1998.
During the third quarter of fiscal 1999, we amended our credit agreement with
our banks to waive compliance with certain financial covenants through March 31,
1999 and to establish new financial covenants for the balance of the term of the
loan. We were in compliance with the new covenants at June 30, 1999. We must
either repay our total bank indebtedness prior to March 18, 2000, negotiate an
extension of our bank credit facility or obtain replacement financing. We cannot
assure investors that we will be able to do so. In conjunction with the
amendment to the credit agreement, the Company issued warrants to its lending
banks totaling 750,000 shares, at an exercise price of $4.02 per share, of which
250,000 shares are immediately exercisable. All, or a portion, of the remaining
500,000 shares are only exercisable if the lending banks extend the credit
agreement beyond the original maturity date for a pre-determined period.

Accounts receivable at June 30, 1999 decreased by $2.6 million from $32.4
million at September 30, 1998 to $29.8 million. By way of comparison, our
accounts receivable at September 30, 1997 were $50.6 million. This reduction in
accounts receivable largely reflects our lower level of revenues in the fourth
quarter of fiscal 1998, as well as the first nine months of fiscal 1999.

Inventories were $31.2 million at June 30, 1999, compared to $36.2 million
at September 30, 1998, a reduction of $5.0 million, as we continued to consume
short-term excess levels, particularly in our semiconductor equipment group.
Inventories in fiscal 1998 were reduced $2.9 million, which included a total of
$16.6 million in inventory provisions. Excluding the inventory provisions, the
increase in inventories in fiscal 1998 was largely a result of revenues
declining significantly below expectations, beginning late in the second
quarter, which resulted in higher than planned ending inventory levels. We
minimized our level of inventory purchases in the second half of fiscal 1998,
which reduced inventories $3.6 million, excluding the inventory provisions.

The increase in other long-term assets of $8.4 million largely reflects an
increase in capitalized software development costs during fiscal 1998, net of
amortization, of $4.6 million, and an intangible asset of $3.75 million
reflecting the technology license and non-competition agreement obtained as a
result of our settlement agreement with General Scanning, Incorporated,
discussed below. We have classified our net deferred tax asset as a

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long-term asset as a result of the loss for fiscal 1998 and the current
uncertainty of realizing this tax benefit in the near-term.

In June 1998, we and GSI executed a settlement agreement of our claims
against GSI, which we had asserted in an action initiated by us in the United
States District Court for the Eastern District of New York, arising out of GSI's
acquisition of View Engineering in August 1996, in which we claimed that GSI had
used information improperly obtained from us in connection with the acquisition.
GSI denied all such claims. Under the settlement agreement, GSI has agreed not
to compete for ten years in the inspection of interconnect leads of
semiconductor packages. Under the settlement, GSI licensed its 2-D and 3-D
vision technology solely to us exclusively for our use in the inspection of
semiconductor interconnection leads. In consideration for the technology license
and non-competition agreement, we agreed to pay GSI $3.75 million, of which
$1.50 million represents 271,493 shares of our common stock and the balance of
$2.25 million is evidenced by a subordinated note payable with a maturity date
of five years.

Accrued expenses decreased from $22.3 million at September 30, 1998 to
$15.0 million at June 30, 1999 primarily as a result of cash payments of $1.2
million for severance and other charges recorded in fiscal 1998. Included in
accrued expenses at June 30, 1999 are $0.5 million of expected future cash
outlays associated with the severance and other charges of $6.6 million in
fiscal 1998.

In February 1999, we completed a private placement of $11.0 million in
stated value of prepaid warrants from which we derived net proceeds of
approximately $10.0 million.

In April 1999, we completed a private placement of 1,309,850 shares of our
common stock to a single corporate investor, from which we derived net proceeds
of approximately $2.9 million.

In July 1999, we completed a private placement of common stock and common
stock purchase warrants from which we derived net proceeds of approximately $6.7
million. As a consequence of this transaction, the respective exercise price of
our prepaid warrants and, pursuant to their antidilution provisions, our
incentive warrants have been each reduced to $3.96 per share.

We believe that through a combination of proceeds from the several 1999
private financings, obtaining additional external capital and existing
receivables and inventories and either the renegotiation of our bank credit
facility or its replacement with alternative bank financing, we will have
sufficient liquidity to fund our cash requirements for at least the next 12
months. We can give no assurance of our ability to either renegotiate or replace
our current bank credit facility prior to its expiration in March 2000. Our
inability to renegotiate or replace this facility would result in severe
constraints upon our then available cash resources, which may affect our ability
to acquire raw materials and supplies to satisfy orders for our products,
thereby reducing the likelihood that we could sustain our operations at their
pre-default levels.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 130, "Reporting Comprehensive Income", and SFAS No. 131, "Disclosure about
Segments of an Enterprise and Related Information", both of which will be
effective for RVSI in fiscal year 1999. SFAS No. 130 establishes standards for
the reporting and display of comprehensive income and its components (revenues,
expenses, gains and losses) in a full set of general purpose financial
statements. SFAS No. 131 establishes

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standards for the way that public business enterprises report selected
information about operating segments. SFAS No. 131 also establishes standards
for related disclosures about products and services, geographic areas, and major
customers. The adoption of SFAS No. 130 in fiscal 1999 resulted in additional
disclosure for RVSI in our consolidated financial statements for the three
months ended December 31, 1998. The adoption of SFAS No. 131 in fiscal 1999 will
require additional disclosures in our consolidated financial statements for the
year ending September 30, 1999.

In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Post-retirement Benefits", which RVSI is required to
implement no later than fiscal year 1999. SFAS No. 132 is an amendment to SFAS
Nos. 87, 88 and 106. The statement standardizes disclosure requirements for
pension and post-retirement benefits to the extent practicable, requires
additional information on changes in the benefit obligations and fair values of
plan assets that will facilitate financial analysis and eliminates certain other
disclosures. The implementation of SFAS No. 132 is not expected to have a
material effect on our consolidated financial statements.

In April 1998, the Accounting Standards Executive Committee issued
Statement of Position ("SOP") 98-5, "Reporting on the Costs of Start-Up
Activities", which RVSI is required to implement no later than fiscal year 2000.
SOP 98-5 establishes standards that require start-up and organization costs to
be expensed as incurred. The implementation of SOP 98-5 is not expected to have
a material effect on our consolidated financial statements.

In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities" -- "Deferral of the Effective Date of FASB
Statement No. 133". SFAS No. 137 delays the implementation of SFAS No. l33 until
our fiscal year ending September 30, 2001. We have not completed our evaluation
of the effects of SFAS 133.

EFFECT OF INFLATION

We believe that the effect of inflation has not been material during each
of the years ended September 30, 1998, 1997 and 1996, respectively.

YEAR 2000 STATUS

We are aware of the potential for business disruption due to the Year 2000
issue, and have taken steps to assess and address these issues. We are
addressing Y2K compliance in three major areas: internal operating systems,
including sales, purchasing, production, engineering, and finance; products,
including installed base and new products; and third parties, vendors. Based on
current internal audits, management believes that it has established a Y2K plan
which will address these issues.

In order to assess Y2K compliance in our internal operating systems, we
first took an inventory of all such systems and identified those which are
critical to our operations. All such systems have been or will be tested for Y2K
compliance by September 30, 1999. Based on the results of testing to date, it is
estimated that about 80% of these systems are Y2K compliant. All non-compliant
systems will be brought into compliance by October 31, 1999, either by upgrades
or replacement.

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With the exception of one minor product which we purchase from a third
party and resell, all of our products currently being shipped, as well as a
large part of our installed base, are Y2K compliant. We expect that this
non-compliant product will be brought into compliance by September 1999.
Customers of that part of our older installed base which is not Y2K compliant
will be offered upgrade options, or replacements, which are Y2K compliant.

The area of Y2K compliance which poses the greatest risk to us is our
vendors, because of our lack of control over their products and operations. In
order to assess their compliance, we are in the process of surveying all major
vendors. We completed these surveys in June 1999, and expect that any compliance
issues will be addressed by October 31, 1999.

Costs associated with our Y2K compliance program are not anticipated to be
substantially different than normal, recurring costs, and are not expected to
materially affect financial results.

While we believe that our Y2K compliance program is on plan for assessing
and addressing any Y2K issues, full compliance can not be assured until this
effort is complete. In particular, despite our best efforts, we may be unable to
establish with certainty the compliance of third party vendors, including those
outside the United States. It is possible that the non-compliance of a key
vendor could interrupt our production schedules and adversely impact our ability
to make timely deliveries of our products.

As this program progresses, we will be better able to assess our Y2K status
in all of the areas outlined above, and focus our efforts on any Y2K issues
which become identified. By October 31, 1999, we will also develop contingency
plans to be put into place in the event that any of our corrective actions fail
to fully address the Y2K issues.

MARKET RISK

Financial instruments that potentially subject us to concentrations of
credit-risk consist principally of cash equivalents and trade receivables. We
place our cash equivalents with high-quality financial institutions, limit the
amount of credit exposure to any one institution and have established investment
guidelines relative to diversification and maturities designed to maintain
safety and liquidity. Our trade receivables result primarily from sales to
semiconductors manufacturers located in North America, Japan, the Pacific Rim
and Europe. Receivables are mostly from major corporations, distributors or are
supported by letters of credit. We maintains reserves for potential credit
losses and such losses have been immaterial.

We are exposed to the impact of fluctuation in interest rates, primarily
through our borrowing activities. Our policy has been to use U.S. dollar
denominated borrowings to fund our working capital requirements. The interest
rates on our current borrowings fluctuate with current market rates. The extent
of risk associated with an increase in the interest rate on our borrowings is
not quantifiable or predictable because of the variability of future interest
rates and our future financing requirements. At June 30, 1999, we had bank
borrowings outstanding of $35.3 million and a long-term note payable of $2.9
million which have a variable interest rate. Using a yield to maturity analysis
and assuming an increase in the interest rate on these borrowings of 78 basis
points (10% fluctuation in the rate), interest rate variability on these
borrowings would not have a material effect on our financial results.

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We are also exposed to the impact of foreign currency fluctuations. During
fiscal 1998, most local currencies of our international subsidiaries weakened
against the U.S. dollar. Since we translate foreign currencies into U.S. dollars
for reporting purposes, these weakened currencies have a negative, though
immaterial, impact on our results. We also believe that our exposure to currency
exchange fluctuation risk is insignificant because our international
subsidiaries sell to customers, and satisfy their financial obligations, almost
exclusively in their local currencies. During fiscal 1998, we did not engage in
foreign currency hedging activities. Based on a hypothetical ten percent adverse
movement in foreign currency exchange rates, the potential losses in future
earnings, fair value of risk-sensitive instruments, and cash flows are
immaterial, although the actual effects may differ materially from the
hypothetical analysis.

We estimate the fair value of our notes payable and long-term liabilities
based on quoted market prices for the same or similar issues or on current rates
offered to us for debt of the same remaining maturities. For all other balance
sheet financial instruments, the carrying amount approximates fair value.

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BUSINESS

GENERAL

We design, manufacture, market and sell automated 1-dimensional,
2-dimensional and 3-dimensional machine vision-based products and systems for
inspection, measurement and identification.

The diversity of our product lines has grown substantially in the past
several years, primarily as a result of acquisitions. Our acquisition history is
summarized below.

NAME OF ACQUIRED COMPANY DATE OF ACQUISITION PRODUCTS
------------------------ ------------------- --------

Acuity Imaging, Inc. September 20, 1995 2-D vision systems for diverse
markets
International Data Matrix, October 23, 1995 Data matrix symbology code
Incorporated readers
NorthEast Robotics, Inc. May 3, 1996 Illumination products for
machine vision systems
Computer Identics Corporation August 30, 1996 Standard barcode products,
data collection networks and
systems for data collection
and material handling markets
Systemation Engineered October 1, 1996 Tape-and-reel, and tube and
Products, Inc. tray based component
processing systems for
semiconductor and electronics
industries
Vanguard Automation, Inc. December 18, 1997 Ball grid array and chip scale
packaging equipment for
semiconductor and connector
industries

PRINCIPAL PRODUCTS AND PRODUCT DEVELOPMENT

SEMICONDUCTOR EQUIPMENT GROUP

Our Semiconductor Equipment Group is comprised of our Electronics division,
as well as our wholly owned subsidiaries, Systemation Engineered Products and
Vanguard Automation, Inc.

The Electronics division supplies inspection equipment to the semiconductor
industry. The division's LS, GS and CS Series lead scanning systems offer
automated, high-speed, 3-D semiconductor package lead inspection with the added
feature of non-contact scanning of the packages in their shipping trays
("in-tray scanning"). The systems use a laser-based, non-contact, 3-D
measurement technique to inspect and sort quad flat packs, thin quad flat packs,
chip scale packages ("CSP"), ball grid arrays ("BGA") and thin small outline
packs in their carrying trays. The system measurements include coplanarity,
total package height, true position spread and span, as well as lead angle,
width, pitch and gap.

Systemation offers tape-and-reel component processing systems designed to
handle and inspect CSP and BGA packages. We believe that Systemation's expertise
in designing and manufacturing systems that handle components in tubes provides
us with the means to further expand the breadth of our product offerings to the
semiconductor market.

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Systemation is also the primary supplier of tape-and-reel systems to the
electronics division.

Vanguard is a supplier of BGA and CSP equipment for the semiconductor and
connection industries. Customers for Vanguard's proprietary BGA and CSP
equipment include over a dozen of the top semiconductor manufacturers in the
world.

ACUITY CIMATRIX DIVISION

In June 1998, we combined our Acuity Imaging division, which was comprised
of Acuity Imaging and Northeast Robotics, Acuity's wholly owned subsidiary, with
our CiMatrix division, which was comprised of Computer Identics and
International Data Matrix, both our wholly owned subsidiaries. The combined
operations is called the Acuity CiMatrix division.

The Acuity CiMatrix division designs, manufactures and markets 1-D and 2-D
data collection products and barcode reading systems, as well as 2-D machine
vision systems and lighting products for use in industrial automation. These
products are used by a broad range of businesses, including customers in the
semiconductor, electronics, automotive, pharmaceutical, consumer products,
postal services and material handling industries. The Acuity CiMatrix division
also supplies certain machine vision products to our Semiconductor Equipment
Group. In addition, we own the patent to the data matrix code, a 2-D code
resembling a scrambled checkerboard. Due to its small size relative to the 1-D
bar code label, the data matrix code can be directly marked on parts and
components greatly enhancing a manufacturer's capability for serialization and
traceability.

Machine vision systems use an image processing computer, software and
electronic cameras to perform such functions as measurement, flaw detection and
inspection of manufactured products. Our data collection and bar code reading
systems use similar functionality to read and collect data from 1-D and 2-D bar
codes for purposes such as sortation, manufacturing quality control,
traceability and security.

In September 1998, Acuity CiMatrix introduced Visionscape, the first
machine vision product platform on a single PCI board for the Pentium/Windows
PC. This product family is designed to meet the needs of both original equipment
manufacturers, which incorporate vision products into their systems, as well as
for direct use by manufacturers on their factory floor.

In December 1998, Acuity CiMatrix introduced the MXi, the first hand-held
imager for reading digital direct part marks, 1-D barcodes and new, digital 2-D
symbologies, such as the Data Matrix code. The MXi is a result of a joint
development and marketing arrangement with Polaroid which began in 1997. This
arrangement, which provides for our joint ownership of the MXi technology with
Polaroid, required us to assume responsibility for the development software and
design specifications of the MXi, while Polaroid assumed responsibility for the
MXi's visual camera aspects and for its manufacture. We have agreed to acquire
the finished product from Polaroid at its standard cost, after which we are
solely responsible for its marketing and distribution. We will share any profit,
after recovery of our marketing costs, with Polaroid.

Our arrangement with Polaroid has an initial term of three years and
thereafter will automatically renew for successive one year terms. Either we or
Polaroid can cancel this arrangement at any time upon six months' prior notice
to the other. If, upon cancellation, the non-canceling party wishes to continue
marketing the MXi, it must pay the canceling party a 5% royalty on its MXi
sales. If we are the canceling party and we wish to continue

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25

marketing the MXi, we must also reimburse Polaroid up to 50% of its then
unrecovered costs up to a maximum of $950,000.

As of June 30 1999, final MXi specifications had not been satisfied and we
had not given Polaroid any firm purchase commitments for the MXi other than for
an immaterial number of pre-production units for customer testing.

MANUFACTURING

Each of our production facilities are capable of fabricating and assembling
total electronic and electromechanical systems and subsystems. Facilities
include assembly and wiring operations that have the ability to produce complex
wiring harnesses, as well as intricate electronic subassemblies. We maintain
comprehensive test and inspection programs to ensure that all systems meet
exacting customer requirements for performance and quality workmanship prior to
delivery.

MARKETING AND SALES

Our Semiconductor Equipment Group's marketing strategy focuses on
cultivating long-term relationships with the leading manufacturers of electronic
and semiconductor inspection and quality control equipment. Its marketing
efforts rely heavily on direct sales methods. The selling cycle for products,
generally, is between six to nine months from initial customer contact to
closure. A lengthier process is often the case in the purchase of an initial
unit. Subsequent purchases require less time and often result in multiple
orders. Group sales activities in the domestic market are handled by direct
sales personnel. The group also maintains sales capabilities in both Europe and
the Far East through independent sales representatives and distributors,
providing access to all major markets for electronic and semiconductor test
equipment. Sales and technical support offices are maintained in Singapore and
Taiwan.

The Acuity CiMatrix division markets its products through a combination of
direct sales personnel, distributors and system integrators. For sales made
through distributors, the Acuity CiMatrix Division supports these activities
with direct sales management and technical support personnel. Besides sales and
support offices in various locations in the United States, the Acuity CiMatrix
Division also maintains sales and support offices in the United Kingdom, France
and Germany.

SOURCES OF SUPPLY

To support our internal operations and to extend our overall capacity, we
purchases a wide variety of components, assemblies and services from proven
outside manufacturers, distributors and service organizations. We have not
experienced any significant difficulty in obtaining adequate supplies to perform
under our contracts.

A number of our components and sub-systems are purchased from single
sources. We believe that alternative sources of supply could be obtained, if
necessary, without major interruption in production. In addition, certain
products or sub-systems developed and marketed by the Acuity CiMatrix division
are incorporated into the Semiconductor Equipment Group's product offerings.

PROPRIETARY PROTECTION

At June 30, 1999, we owned over 100 issued U.S. patents, with expiration
dates ranging from 1999 to 2014. We also have various U.S. and foreign
registered trademarks.

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26

We do not believe that our present operations are materially dependent upon
the proprietary protection that may be available to us by reason of any one or
more of such patents. Moreover, as its patent position has not been tested, with
the exception of the litigation referred to elsewhere in this prospectus, we can
give no assurance as to the effectiveness of the protection afforded by patent
rights.

CUSTOMERS

Intel Corporation accounted for 5%, 20%, 23% and 13% of our revenues during
our nine months ended June 30, 1999 and our fiscal years ended September 30,
1998, 1997 and 1996, respectively. No other customer accounted for more than 10%
of sales during the fiscal years ended September 30, 1998, 1997 and 1996,
respectively. No customer accounted for more than 10% of sales during the three
month fiscal period ended December 31, 1998.

Revenues from unaffiliated customers generated by our European subsidiaries
were $7,558,000, $14,556,000, $16,812,000 and $16,226,000 for the nine months
ended June 30, 1999 and the years ended September 30, 1998, 1997 and 1996,
respectively.

Total revenues from customers outside the U.S. were $46,157,000,
$108,711,000, $115,854,000 and $97,483,000 for the nine months ended June 30,
1999 and the years ended September 30, 1998, 1997 and 1996, respectively.

BACKLOG

At June 30, 1999 our backlog was $27.9 million as compared to $16.9 million
and $43.2 million at September 30, 1998 and September 30, 1997, respectively. We
believe that most of our backlog at June 30, 1999 will be delivered in the next
12 months. The change in our backlog in these periods is a reflection of short
term business levels and customer lead times. We do not believe that our backlog
at any particular time is necessarily indicative of our long-term future
business.

COMPETITION

We believe that machine vision has evolved into a new industry over the
past several years, in which a number of machine vision-based firms have
developed successful industrial applications for the technology. We are aware
that a large number of companies, estimated to be upward of 100 firms, entered
the industry in the 1980's and that most of these were small private concerns.
Over the last several years the number of competitors has narrowed to less than
25. We believe this is attributable, to a large extent, to consolidation within
the industry. Our principal competitor is Accusort in 1-D scanning and Cognex in
machine vision, respectively. We believe that we are a significant competitor in
the machine vision industry based upon the breadth of our product lines, our
customer base and our board array of patents. The pricing of our semiconductor
inspection systems, is somewhat higher, generally, than that of our competitors,
but we do not regard this factor as a significant competitive disadvantage as
customers have historically enhanced their willingness to pay our asking prices
to obtain features that are unavailable in our competitors' product offerings.

RESEARCH AND DEVELOPMENT

Our sponsored research and development efforts over recent years have been
largely devoted to continued development of advanced 2-D and 3-D vision
technology and applications software for use in various inspection and process
control automation systems.

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Research and development has also included activity related to automatic
identification technology development. Research and development expenditures,
net of capitalized software development costs, were $15,276,000, $28,121,000,
$25,465,000 and $21,834,000 for the nine months ended June 30, 1999 and the
years ended September 30, 1998, 1997 and 1996, respectively. In the nine months
ended June 30, 1999 and in the fiscal years ended September 30, 1998, 1997 and
1996, RVSI capitalized $4,096,000, $7,397,000, $4,842,000 and $2,630,000,
respectively, of its software development costs in accordance with the
provisions of Statement of Financial Accounting Standards No. 86.

ENVIRONMENTAL REGULATION

We believe that compliance with federal, state, local and, where
applicable, foreign environmental regulations does not have any material effect
on our capital expenditures, earnings or competitive position.

EMPLOYEES

At June 30, 1999 we employed 664 persons, of whom 240 were engineering and
other technical personnel. None of our employees is a member of a labor union.

FACILITIES

Our executive offices, as well as our Acuity CiMatrix division, are located
in a 60,000 square foot facility in Canton, Massachusetts. The Acuity CiMatrix
division also maintains a 50,000 square foot engineering facility in Nashua, New
Hampshire and its Northeast Robotics operations are located in a 12,000 square
foot facility in Weare, New Hampshire. Our electronics division is located in a
65,000 square foot facility located in Hauppauge, New York. Systemation's
operations are located in a 90,000 square foot facility located in New Berlin,
Wisconsin and Vanguard's operations are located in a 38,000 square foot facility
in Tucson, Arizona.

We also maintain sales and service offices across the United States to
support our various operations. The Acuity CiMatrix division has sales and
service offices in the United Kingdom, France and Germany. We maintain sales and
service offices in Singapore and Taiwan to support our semiconductor equipment
group's operations.

All of our facilities are leased, with lease expiration dates ranging from
1999 to 2013.

LEGAL PROCEEDINGS

We initiated two actions in the United States District Court for the
Central District of California against GSI and its View subsidiary, alleging
infringement by View of a number of our patents relating to View's assembly and
distribution of View's own 3-D machine vision products. In June 1998, the Court,
in the first of these actions, involving the coplanarity inspection of ball grid
array semiconductor package substrates, found infringement by View and granted
our request for injunctive relief against View. This ruling has been appealed by
View to the United States Appeals Court for the Federal Circuit. The second of
these actions, in which we have sought both injunctive relief and monetary
damages of not less than $75.0 million, is presently expected to come to trial
on or about November 15, 1999.

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MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS OF THE REGISTRANT

Set forth below is information concerning each of our directors and
executive officers.

NAME AGE POSITIONS AND OFFICES
- ---- --- ---------------------

Pat V. Costa.......................... 55 Chairman of the Board, President,
and Chief Executive Officer
Howard Stern.......................... 61 Senior Vice President and Director
Frank D. Edwards...................... 45 Chief Financial Officer and Secretary
Curtis W. Howes....................... 48 Vice President
John S. O'Brien....................... 45 Vice President
Earl H. Rideout....................... 52 Senior Vice President
Neal H. Sanders....................... 50 Vice President
Frank A. DiPietro..................... 72 Director
Jay M. Haft........................... 63 Director
Tomas Kohn............................ 58 Director
Donald J. Kramer...................... 66 Director
Mark J. Lerner........................ 46 Director
Robert H. Walker...................... 63 Director

PAT V. COSTA has served as our president, chief executive officer and
chairman of our board of directors since 1984. Previously and from 1977, Mr.
Costa was employed by GCA Corporation, most recently in the capacity of
executive vice president. GCA was engaged in the manufacturing of various
electronic instrumentation equipment and systems.

HOWARD STERN has been our senior vice president and technical director
since 1984. Previously and from 1981, he was our vice president. Mr. Stern has
been a director since 1981.

FRANK D. EDWARDS joined us in March 1999 as our corporate vice president of
finance, secretary and chief financial officer. Prior to joining us and since
1986, he was employed by Electronic Designs, Inc. Most recently, until that
company's merger with Bowmar Instrument Corporation in October 1998, he was
senior vice president and chief financial officer and a member of its board.

CURTIS W. HOWES joined us in May 1997 as corporate vice president of
automatic identification. From 1991 to 1997, he was employed by Intermec
Corporation, most recently as general manager of Intermec's imaging systems
division, which designed, manufactured and sold vision-based products for
symbology reading.

JOHN S. O'BRIEN joined us in February 1997 as corporate vice president of
human resources. Previously and from 1990, he was vice president, human
resources and chief financial officer of Charles River Data Systems, an imbedded
systems developer and manufacturer.

EARL H. RIDEOUT has been corporate senior vice president of our
semiconductor equipment group since January 1997. Previously and from 1989 he
was vice president/general manager of our electronics division.

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29

NEAL H. SANDERS joined us in February 1999 as corporate vice president of
corporate communications and investor relations. From 1980 through 1998, he held
comparable positions at Analog Devices, Inc., Bolt Beranek and Newman, Inc.,
Information Analysis, Inc. and Microdyne Corporation.

FRANK A. DIPIETRO has been a director since 1992. Mr. Dipietro began his
career with General Motors in 1944. During his forty-six year career with GM, he
was actively involved in automobile assembly and manufacturing engineering
systems. He retired in 1990 and continues as a consultant in laser systems in
several industries, most recently for the University of Michigan in evaluating
laser applications in the global auto industry. At the time of his retirement,
Mr. DiPietro held the position of director of manufacturing engineering,
Chevrolet-Pontiac-Canada car group, for GM. In 1996, he was elected to the
position of director-at-large for the Society of Manufacturing Engineers.

JAY M. HAFT has been a practicing attorney for over 30 years and a
strategic and financial consultant for growth stage companies. Mr. Haft, who has
been a director since 1977, also serves as chairman of Noise Cancellation
Technologies, Inc. and Extech, Inc. both public companies whose respective
securities are traded on the Nasdaq Small Cap Market. He is a managing general
partner of Gen Am "1" Venture Fund, an international venture capital fund. Mr.
Haft is also a director of numerous other public and private corporations. From
1989 until 1994, he was a partner of Parker Duryee Rosoff & Haft in New York,
New York. He is currently of counsel to such firm.

TOMAS KOHN, a director of RVSI since 1997, has been a professor of
management at Boston University's School of Management in the undergraduate,
MBA, and executive MBA programs since 1988. Dr. Kohn is the chairman of Conduit
del Ecuador, a steel tubing manufacturer, and a member of the board of
Ideal-Alambrec, a steel wire manufacturer, both in Quito, Ecuador. He has held
these positions since 1974 and 1972, respectively. From 1987 until our
acquisition of Computer Identics in 1996, Dr. Kohn was a member of Computer
Identics' board, and its chairman since 1992. From 1986 until 1995, Dr. Kohn was
a member of the board of N.V. Bekaert S.A., the world's largest independent
steel wire manufacturer. N.V. Bekaert was a major shareholder of Computer
Identics.

DONALD J. KRAMER was chairman of Acuity from 1994 until our acquisition of
Acuity in 1995, at which time he became one of our directors. Mr. Kramer served
as a director of Itran Corp. from 1982 until its merger with Automatix in 1994,
at which time the merger survivor assumed the Acuity name. Mr. Kramer is a
private investor and was a special limited partner of TA Associates, a private
equity capital firm located in Boston, Massachusetts, from January 1990 to March
1996. For the previous five years, Mr. Kramer was a general partner of TA
Associates. In January 1997, Mr. Kramer was elected to the board of
publicly-owned Micro Component Technology, Inc. Mr. Kramer is also a director of
several privately held companies.

MARK J. LERNER has been president of Morgen, Evan & Company, Inc., an
investment banking firm which focuses on Japanese-U.S. transactions, since 1992.
Previously and from 1990, he was a managing director at Chase Manhattan Bank
where he headed the Japan corporate finance group. From 1982 to 1990 Mr. Lerner
worked in the investment banking division of Merrill Lynch as head of its Japan
group, coordinating its New York-based Japanese activities with professionals in
Tokyo and London. He has been a director of RVSI since 1994.

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ROBERT H. WALKER was, before his retirement in March 1998, our executive
vice president and secretary-treasurer, a position he had held since 1986. From
1984 to 1986 he was our senior vice president. From 1983 to 1985 he also served
as our treasurer. He has been a director of RVSI since 1990. Mr. Walker is also
a director of Tel Instrument Electronics Corporation, a publicly-owned company.

COMPENSATION

Set forth below is the aggregate compensation for services rendered in all
capacities during our fiscal years ended September 30, 1998, 1997 and 1996 by
our chief executive officer. Each of our four other most highly compensated
executive officers whose compensation exceeded $100,000 during our fiscal year
ended September 30, 1998 and two other executive officers who would have been
disclosed had they been employed at the fiscal year end.

SUMMARY COMPENSATION TABLE

LONG TERM COMPENSATION
ANNUAL COMPENSATION ----------------------------------
----------------------------- AWARDS PAYOUTS
OTHER ---------------------- --------- ALL
NAME AND ANNUAL RESTRICTED LONG TERM OTHER
PRINCIPAL COMPEN- STOCK NUMBER OF INCENTIVE COMPEN-
POSITION YEAR SALARY BONUS(1) SATION AWARDS OPTIONS PAYOUTS SATION(2)
- --------- ---- -------- -------- ------- ---------- --------- --------- ---------

Pat V. Costa............ 1998 $315,016 $55,000 -- -- -- -- $2,400
Chief executive 1997 293,478 $50,000 -- -- -- -- $2,375
officer 1996 252,801 $85,000 -- -- -- -- $2,250

John J. Arcari(3)....... 1998 $175,008 $ 5,000 -- -- -- -- --
Former chief financial
officer

Curtis W. Howes......... 1998 $138,231 $20,000 -- -- -- -- $ 300
Vice president

Earl H. Rideout......... 1998 $150,010 $25,000 -- -- -- -- $2,400
Senior vice president 1997 143,318 $25,000 -- -- -- -- $2,400
1996 122,747 $40,000 -- -- -- -- $2,250

Howard Stern............ 1998 $165,006 $30,000 -- -- -- -- $2,400
Senior vice president 1997 159,625 $30,000 -- -- -- -- $2,375
1996 144,544 $60,000 -- -- -- -- $2,250

Steven J. Bilodeau(4)... 1998 $232,497 $50,000 -- -- -- -- $2,400
Former executive vice 1997 206,545 $45,000 -- -- -- -- $2,375
president 1996 167,280 $75,000 -- -- -- -- $2,250

Robert H. Walker(5)..... 1998 $151,362 $35,000 -- -- -- -- $2,400
Former senior vice 1997 159,625 $35,000 -- -- -- -- $2,375
president 1996 142,229 $60,000 -- -- -- -- $2,250

- -------------------------

(1) Represents amounts earned in the prior fiscal year which were paid in the
fiscal year shown. There were no bonuses earned for the fiscal year ended
September 30, 1998.

(2) Represents accrued and vested payments under our retirement plan.

(3) Mr. Arcari joined us in August 1997 as our vice president-finance. Mr.
Arcari resigned in March 1999.

(4) Mr. Bilodeau resigned in June 1998.

(5) Mr. Walker retired in March 1998.

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OPTION GRANTS IN LAST FISCAL YEAR

Set forth below is information with respect to our grants of stock options
to each of the named persons in the summary compensation table, above.

NUMBER PERCENT OF
OF TOTAL OPTIONS
SECURITIES GRANTED
UNDERLYING TO EMPLOYEES EXERCISE
OPTIONS IN FISCAL PRICE PER EXPIRATION PRESENT
NAME GRANTED YEAR SHARE DATE VALUE(1)
- ---- ---------- ------------- --------- ---------- --------

Curtis W. Howes...... 16,667 0.6% $4.13 5/05/03 $14,601
Curtis W. Howes...... 16,667 0.6 4.13 7/01/03 16,808
Earl H. Rideout...... 7,743 0.3 4.13 7/22/05 11,182
Earl H. Rideout...... 34,263 1.2 3.19 9/01/04 66,662
Howard Stern......... 30,000 1.1 4.13 6/26/08 71,523
Steven J. Bilodeau... 10,000 0.4 4.13 6/26/01 16,714
Robert H. Walker..... 15,000 0.5 4.13 6/26/04 37,784
------- --- -----
130,340 4.7%
======= ===

- -------------------------

(1) Computed in accordance with the Black-Scholes option pricing model utilizing
the following assumptions: volatility of 70%, risk-free interest rate of
4.3% and an expected life of five years.

OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES

Set forth below is further information with respect to the unexercised and
exercised options to purchase our common stock under our stock option plans:

NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS AT IN-THE-MONEY OPTIONS
ACQUIRED SEPTEMBER 30, 1998 AT SEPTEMBER 30, 1998(2)
ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- -------- ----------- ----------- ------------- ----------- -------------

Pat V. Costa........... -- -- 207,326 309,699 $200,131 --
John J. Arcari......... -- -- 20,000 80,000 -- --
Curtis W. Howes........ -- -- -- 33,334 -- --
Earl H. Rideout........ -- -- 32,994 42,006 $ 38,056 --
Howard Stern........... 20,830 $30,786 15,000 60,970 -- --
Steven J. Bilodeau..... -- -- 37,973 172,027 -- --
Robert H. Walker....... -- -- 26,113 38,228 -- --

- -------------------------

(1) Based on the exercise of 13,061 shares at $2.56 fair market value on the
date of exercise less the $1.00 per share cost to exercise and the exercise
of 7,769 shares at $2.56 fair market value on the date of exercise less the
$1.00 per share cost to exercise.

(2) Based on the September 30, 1998 fair market value of $2.69 less the cost to
exercise.

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PENSION BENEFITS

The following table sets forth the estimated annual plan benefits payable
upon retirement in 1999 at age sixty-five after fifteen, twenty, twenty-five,
thirty and thirty-five years of credited service.

YEARS OF SERVICE
-----------------------------------------------
REMUNERATION 15 20 25 30 35
- ------------ ------- ------- ------- ------- -------

$100,000........... $19,824 $26,432 $33,041 $33,041 $33,041
125,000............ 25,525 34,033 42,541 42,541 42,541
150,000............ 31,225 41,633 52,041 52,041 52,041
175,000............ 33,505 44,673 55,841 55,841 55,841
200,000............ 33,505 44,673 55,841 55,841 55,841
225,000............ 33,505 44,673 55,841 55,841 55,841
250,000............ 33,505 44,673 55,841 55,841 55,841
300,000............ 33,505 44,673 55,841 55,841 55,841
400,000............ 33,505 44,673 55,841 55,841 55,841
500,000............ 33,505 44,673 55,841 55,841 55,841

The amount of compensation covered by our pension plan is determined in
accordance with rules established by the Internal Revenue Service and includes
all dollar items shown on the summary compensation table with the exception of
401(k) contributions. Effective with the fiscal year beginning October 1, 1998,
for purposes of calculating the pension benefit, earnings are limited to
$160,000, as adjusted for any cost of living increases authorized by the
Internal Revenue Code of 1986, as amended. This earnings limit will continue to
be $160,000 for calendar year 1999.

At September 30, 1998, Messrs. Costa, Rideout and Stern had, respectively,
14, 10 and 27 years of credited service.

A participant in the pension plan will receive retirement income based on
23% of his final average salary up to his applicable social security covered
compensation level plus 38% of any excess, reduced proportionately for less than
twenty-five years of credited service at normal retirement at age 65, subject to
the $160,000 limit described above. Final average salary is defined in the
pension plan as the average of a participant's total compensation during the
five consecutive calendar years in the ten calendar year period prior to his
normal retirement date which produces the highest average. A participant is 100%
vested in his accrued pension benefit after five years of service as defined in
the pension plan.

EMPLOYMENT AGREEMENTS

Mr. Pat Costa is employed as our chief executive officer and president
under an indefinite term agreement which currently provides for an annual base
salary of $315,000. Pursuant to the terms of his employment agreement, Mr. Costa
has been granted certain rights in the event of the termination of his
employment or a change in control of us. Specifically, in the event of
termination for any reason other than for cause and other than voluntarily, Mr.
Costa will be entitled to the continuance of salary and certain fringe benefits
for a period of twelve months and may exercise all outstanding stock options
which are exercisable during the twelve-month period following termination at
any time

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within such twelve-month period. In the event of the occurrence of a change in
our control (as defined in his employment agreement) and, further, in the event
that Mr. Costa is not serving in the positions of our chief executive officer,
president and chairman, other than for cause, within one year thereafter, Mr.
Costa will be entitled to exercise all outstanding stock options, regardless of
when otherwise exercisable, during the six-month period following the
termination date of his employment.

We have also granted certain rights in the event of termination of
employment to Messrs. Edwards, Howes, Rideout and Stern. In the event of
involuntary termination other than for cause, each officer will be given six
months severance pay and continued benefits. In addition, we have agreed to
provide a maximum of one hundred days' advance written notice to Mr. Stern in
the event we should desire to terminate his employment other than for cause. In
such event, he shall be entitled to exercise all outstanding stock options,
regardless of when otherwise exercisable, during a specified period following
such termination.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Mr. Jay M. Haft, a director, is of counsel to Parker Duryee Rosoff & Haft,
our general counsel prior to March 1, 1997.

Mr. Mark J. Lerner, a director, is President of Morgen, Evan. Mr. Lerner,
through Morgen, Evan, provided consultation services relative to our
international marketing and sales efforts. In accordance with an agreement dated
December 1993 (which was prior to his becoming a director), during the fiscal
years ended September 30, 1996, September 30, 1997 and September 30, 1998, we
compensated Mr. Lerner, through Morgen, Evan, in cash in the amounts of $87,369,
$62,390 and $9,800, respectively, as well as with four-year warrants, at
exercise prices of $12.88, $13.13 and $2.57, respectively, to acquire an
aggregate of 42,434, 2,565 and 18,000 shares of our common stock, respectively.
All warrants were issued at the fair market value of our common stock on the
date of grant. We believe that the compensation we paid to Morgen, Evan was no
greater than what we would have had to pay to an unaffiliated person for
substantially similar services.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

During the fiscal year ended September 30, 1998, the following officers
participated in discussions concerning executive officer compensation: Pat V.
Costa, John J. Arcari, Howard Stern and Robert H. Walker. Each of the named
participants recused himself in discussions concerning his own compensation.

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PRINCIPAL STOCKHOLDERS

The following table sets forth certain information regarding the ownership
of our common stock as of September 1, 1999 by

- each director

- each person known by us to own beneficially 5% or more of our common
stock

- each officer named in the summary compensation table elsewhere in this
prospectus

- all directors and executive officers as a group

NUMBER OF SHARES
OF COMMON STOCK PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER(1) BENEFICIALLY OWNED(2) OF CLASS
- --------------------------------------- --------------------- --------

Pat V. Costa.......................... 238,927(3) 0.9%
Frank A. DiPietro..................... 59,437(4) *
Jay M. Haft........................... 491,724(5) 1.8%
Tomas Kohn............................ 53,555(6) *
Donald J. Kramer...................... 27,832(7) *
Mark J. Lerner........................ 70,911(8) *
Howard Stern.......................... 82,978(9) *
Robert H. Walker...................... 87,092(10) *
Curtis W. Howes....................... 13,836(11) *
Earl H. Rideout....................... 40,155(12) *
Kenneth C. Griffin
c/o Citadel Limited Partnership
225 West Washington Street
Chicago, Illinois 60606.......... 3,001,630(13) 10.0%
All current executive officers and
directors as a group (13 persons)... 1,186,781(14)(15) 4.3%

- -------------------------

* Denotes less than 1%.

(1) Except as otherwise indicated, the address of each beneficial owner is 5
Shawmut Road, Canton, Massachusetts 02021.

(2) Except as otherwise indicated, includes shares underlying currently
exercisable options and warrants as well as those options and warrants
which will become exercisable within 60 days of September 1, 1999. Except
as otherwise indicated, the named persons herein have sole voting and
dispositive power with respect to beneficially owned shares.

(3) Includes 207,326 shares underlying options and 1,601 vested shares held
under our retirement investment plan.

(4) Includes 3,000 shares underlying options; also includes 31,770 shares owned
of record by Mr. DiPietro's spouse.

(5) Includes 25,000 shares underlying options; also includes 399,078 shares
owned of record by Mr. Haft's spouse and 7,666 shares held indirectly in a
retirement trust.

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(6) Includes 3,000 shares underlying options; also includes 1,684 shares owned
of record by Mr. Kohn's spouse.

(7) Includes 11,802 shares underlying options; also includes 10,000 shares held
indirectly in an irrevocable trust with Mr. Kramer's spouse as trustee. Mr.
Kramer disclaims any interest in these shares.

(8) Includes 60,999 shares underlying warrants held by Morgen, Evan & Company,
Inc., of which Mr. Lerner is the principal owner; also includes 8,000
shares underlying options.

(9) Includes 30,000 shares underlying options and 6,148 vested shares held
under our retirement investment plan.

(10) Includes 29,113 shares underlying options and 20,632 shares indirectly in a
retirement account.

(11) Includes 13,336 shares underlying options.

(12) Includes 39,847 shares underlying options and 308 vested shares held under
our retirement investment plan.

(13) Citadel Limited Partnership has informed us that Fisher Capital Ltd.,
Wingate Capital Ltd., Olympus Securities Ltd. and NP Partners beneficially
own, as of September 1, 1999, 2,019,123, 1,210,143, 20,931 and 15,728 of
our shares, or an aggregate of 3,223,534 shares, including shares
underlying prepaid warrants, incentive warrants and other warrants
currently exercisable and exercisable within 60 days of September 1, 1999.
Each holder of prepaid warrants is prohibited from exercising such warrants
if exercise would cause the holder and its affiliates to own a number of
shares which, when added to the number of shares of common stock
beneficially owned 60 days prior to the date of such exercise plus any
shares which were acquired during the 60 day period, would be in excess of
10% of our common stock outstanding immediately following such exercise.
Therefore, the maximum number of shares of our common stock that can be
beneficially owned by Fisher, Wingate, Olympus and NP Partners in the
aggregate is 3,001,630 shares.

Citadel has also informed us that:

- Wellington Partners Limited Partnership is the sole shareholder of
Wingate and the sole member of WNPH, L.L.C.;

- WNPH and WCH, L.L.C. are the general partners of NP Partners;

- Kensington Global Strategies Fund, Ltd. is the sole shareholder of Fisher
and Olympus;

- Citadel Limited Partnership is the general partner of Wellington, the
portfolio manager of Kensington, and the sole member of WCH;

- GLB Partners, L.P. is the general partner of Citadel Limited Partnership;

- Citadel Investment Group, L.L.C. is the general partner of GLB; and

- Kenneth C. Griffin is the sole member and manager of Citadel Investment
Group.

Citadel has also informed us that Kenneth C. Griffin, Citadel Limited
Partnership and each of the Citadel entities disclaims beneficial ownership
of the shares of common stock held by the other Citadel entities.

(14) Includes an aggregate of 436,757 shares underlying options and warrants.

(15) Includes an aggregate of 8,057 vested shares held in our investment
retirement plan.

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DESCRIPTION OF OUR SECURITIES

COMMON STOCK

We are currently authorized to issue up to 75,000,000 shares of our common
stock, $.01 par value. As of September 1, 1999, 27,337,333 shares of our common
stock were issued and outstanding, and held of record by approximately 4,800
persons. We estimate that there are in excess of 20,000 beneficial owners of our
common stock.

Holders of shares of our common stock are entitled to such dividends as may
be declared from time to time by the board in its discretion, on a ratable
basis, out of funds legally available therefrom, and to a pro rata share of all
assets available for distribution upon liquidation, dissolution or other winding
up of our affairs. All of the outstanding shares of our common stock are fully
paid and non-assessable.

WARRANTS

The following summary presents and describes all material terms of both the
prepaid warrants and the incentive warrants.

As of September 1, 1999, there were issued and outstanding $11,000,000 in
stated value of prepaid warrants held of record by four persons, each allowing
the holder to acquire an indeterminate number of shares based on the market
price of our common stock at the date of exercise. Each prepaid warrant is
exercisable at the lower of $4.02 per share or 95% of the average of the three
lowest closing bid prices of RVSI common stock during the 20-day trading period
ending on the date immediately preceding the date of notice of exercise, which
20-day trading period is subject to extension as set forth in the prepaid
warrants.

The prepaid warrants bear an annual premium of 7% per annum, payable in
cash or, at our option, in shares of its common stock, and are initially
exercisable, to the extent of 25% of the total number of shares issuable,
commencing on the 180th day following their issuance, increasing by increments
of 25% every 90 days thereafter so that after the passage of 450 days following
the date of original issuance, the prepaid warrants will have become fully
exercisable.

At September 1, 1999, the aggregate number of shares of our common stock
issuable upon exercise of the prepaid warrants would have been 3,559,871, based
upon an assumed exercise price of $3.09 per share, representing 95% of the
average of the three lowest closing bid prices of our common stock during the
20-day trading period ending on that date.

Each holder of prepaid warrants is prohibited from exercising such
warrants, subject to certain exceptions, if exercise would cause the holder and
its affiliates to own more than 5%, or 10% in the case of certain holders, of
our common stock.

The exercisability of the prepaid warrants may be accelerated, among other
events, upon the occurrence of

- certain mergers between us and other entities in which we are not the
survivor

- the disposition of all or substantially all of our assets

- the announcement by a third party of a tender or exchange offer for no
less than half of our then outstanding common stock or of its intention
to replace a majority of our board

- an event of default as specified in the prepaid warrants

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The prepaid warrants contain provisions pursuant to which their fixed
exercise price will be adjusted upon the occurrence of certain events, including
our failure to have an effective registration statement under the Securities Act
covering resales of those shares of common stock issuable upon exercise of the
prepaid warrants. In addition, subject to certain exceptions, if we issue common
stock or any securities convertible into or exchangeable for shares of common
stock at a conversion or exchange rate based on a discount to the market price
of the common stock at the time of issuance of the common stock or other
securities, the fixed exercise price after such issuance shall be adjusted
downward proportionately in accordance with a standard anti-dilution formula.

The following table illustrates the effect of various exercise prices on
the number of shares that may be issued, assuming the prepaid warrants are
exercised at the following exercise prices, without calculating the number of
shares issuable in connection with accrued and unpaid premium amounts:

NUMBER OF SHARES PERCENTAGE OF
ASSUMED OF COMMON STOCK OUTSTANDING
EXERCISE ISSUABLE UPON COMMON STOCK
PRICE(1) EXERCISE(2) UPON EXERCISE(3)
- -------- ---------------- ----------------

$4.02(4)..................................... 2,736,319 9.1%
$3.50........................................ 3,142,858 10.3%
$3.00........................................ 3,666,667 11.8%
$2.50(5)..................................... 4,400,000 13.9%
$2.00(5)..................................... 5,500,000 16.8%
$1.50(5)..................................... 7,333,334 21.2%

- -------------------------

(1) Generally, the exercise price will be the lower of the fixed exercise price
($4.02 per share) or the fluctuating market price. Therefore, there is no
minimum exercise price, and, unless the number of outstanding shares of
common stock is reduced by a reverse stock split or other capital stock
reducing event, the exercise price will not exceed $4.02 per share.

(2) Calculated by dividing the $11,000,000 aggregate stated value of the prepaid
warrants by the assumed exercise price (column 1 of this table). No effect
has been given to the possible issuance of up to 1,247,222 shares of common
stock upon exercise of the incentive warrants as their exercise price of
$4.02 is equal to or greater than the assumed exercise prices.

(3) Assumes that the number of shares of common stock outstanding after the
issuance of the number of shares set forth in column 2 of this table is the
sum of the shares outstanding as of September 1, 1999 and the
number of shares set forth in column 2 of this table.

(4) We will have the right, exercisable upon no more than four occasions, to
redeem the prepaid warrants at a redemption price of 120% of the prepaid
amount, inclusive of accrued and unpaid premium whenever the warrant
exercise price is less than $4.02 per share.

(5) If the exercise price of the prepaid warrants for which a notice of exercise
has been given is $2.50 or less, we may elect to redeem such prepaid
warrants for cash. There can be no assurance that we will have the necessary
cash resources to effect such redemption.

The prepaid warrants are subject to call at our option if both, during the
20-day trading day period immediately preceding the date of our notice of
redemption the average closing bid price, and on the date of our notice of
redemption the closing bid price, of our common stock is less than $4.02 per
share, subject to anti-dilution adjustment, at a cash

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38

price equal to 120% of the exercise amount of the prepaid warrants, inclusive of
earned premium, called for redemption. Such call right may be exercised by us up
to four times during the term of the prepaid warrants. The prepaid warrants are
also subject to redemption by us, at our option, if their exercise price falls
below $2.50 per share.

There were also issued and outstanding as of September 1, 1999

- five-year incentive common stock purchase warrants to purchase 1,247,222
shares of our common stock at an exercise price of $4.02 per share

- five-year common stock purchase warrants to purchase 3,090,907 shares of
our common stock at an exercise price of $4.02 per share. This exercise
price is subject to possible downward adjustment on one occasion, as
follows: if on January 14, 2000 the average of the closing bid prices of
our common stock for the 30 trading days prior to that date shall be less
than $4.02, then the exercise price shall be reduced to an amount equal
to such average

- five-year common stock purchase warrants to purchase 750,000 shares of
our common stock at an exercise price of $5.00 per share

Each of these warrants provides for a downward adjustment of their exercise
price in the event that, subject to certain exceptions, we issue common stock or
securities convertible into or exercisable for common stock at a price below the
average closing bid prices for shares of the common stock for the 5 trading days
immediately preceding the relevant issuance date. See "Selling Stockholders."

LIMITATION OF LIABILITY

As permitted by the General Corporation Law of the State of Delaware, our
restated certificate of incorporation provides that our directors shall not be
personally liable to us or our stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability

- for any breach of the director's duty of loyalty to us or our
stockholders

- for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law

- under section 174 of the Delaware law, relating to unlawful payment of
dividends or unlawful stock purchases or redemption of stock

- for any transaction from which the director derives an improper personal
benefit.

As a result of this provision, we and our stockholders may be unable to
obtain monetary damages from a director for breach of his or her duty of care.

Our restated certificate of incorporation provides for the indemnification
of our directors and officers, and, to the extent authorized by our board in its
sole and absolute discretion, employees and agents, to the full extent
authorized by, and subject to the conditions set forth in the Delaware law. We
currently maintain liability insurance for the benefit of our directors and
officers.

DELAWARE ANTI-TAKEOVER LAW

We are subject to the provisions of section 203 of the Delaware law.
Section 203 prohibits publicly held Delaware corporations from engaging in a
"business combination" with an "interested stockholder" for a period of three
years after the date of the transaction in which the person became an interested
stockholder, unless the business combination is approved in a prescribed manner.
A "business combination" includes mergers, asset sales and other transactions
resulting in a financial benefit to the interested

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39

stockholder. Subject to certain exceptions, an "interested stockholder" is a
person who, together with affiliates and associates, owns, or within three years
did own, 15% or more of the corporation's voting stock. These provisions could
have the effect of delaying, deferring or preventing a change of control of us
or reducing the price that certain investors might be willing to pay in the
future for shares of our common stock.

SHAREHOLDER RIGHTS PLAN

We have a shareholder rights plan. The plan is intended to deter coercive
or partial offers which will not provide fair value to all stockholders and
enhance our ability to represent all stockholders and thereby maximize
stockholder values.

Pursuant to a rights agreement with American Stock Transfer & Trust
Company, as rights agent, one right was issued for each outstanding share of our
common stock on May 26, 1998. Each right entitles the registered holder to
purchase one-third of a share of common stock, at a price of $18.00 per
one-third of a share. The rights generally will not become exercisable unless
and until, among other things, any person, other than the purchasers of the
prepaid warrants, acquires 15% or more of our outstanding common stock. The
rights are redeemable under certain circumstances at $.005 per right and will
expire, unless earlier redeemed or extended, on May 26, 2008.

TRANSFER AGENT

The transfer agent for our common stock is American Stock Transfer & Trust
Company.

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40

SELLING STOCKHOLDERS

The registration statement, of which this prospectus forms a part, relates
to our registration, for the account of the selling stockholders, of an
aggregate of 1,063,593 shares of our common stock, as well as an aggregate of
3,990,907 shares of our common stock underlying certain of our incentive and
other warrants. These shares are being registered pursuant to registration
rights granted by us to the selling stockholders in April 1999 and July 1999
respectively, in connection with their acquisition of these shares and warrants.

We believe, based on information supplied by the following persons, that
except as noted, the persons named in this table have sole voting and investment
power with respect to all shares of common stock which they beneficially own.
The last column in this table assumes the sale of all of our shares offered by
this prospectus.

SHARES
BENEFICIALLY
OWNED PRIOR COMMON STOCK SHARES BENEFICIALLY
TO OFFERING OFFERED BY OWNED AFTER OFFERING
NAMES OF ------------ SELLING --------------------
SELLING STOCKHOLDERS NUMBER(2) STOCKHOLDER NUMBER(6) PERCENT
- -------------------- ------------ ------------ --------- -------

Fisher Capital, Ltd.(1)........ 2,019,123(3) 1,220,000 799,123 2.9%
Wingate Capital, Ltd.(1)....... 1,210,143(4) 780,000 430,143 1.6%
Omicron Partners Ltd. ......... 1,195,957(5) 1,115,051 80,906 *
Emergent Capital LP............ 135,081 135,081 -- --
Pentium Fund................... 45,245 45,245 -- --
Goldman Sachs Performance
Partners, LP................. 292,694 292,694 -- --
Goldman Sachs Performance
Partners (Offshore), LP...... 243,876 243,876 -- --
The Zanett Securities
Corporation.................. 13,770 13,770 -- --
HFTP Investment LLC............ 16,393 16,393 -- --
Parkland Limited............... 32,786 32,786 -- --
Halifax Fund Ltd. ............. 72,727 72,727 -- --
Stephen A. Ganett.............. 32,786 32,786 -- --
Frederick C. Lake.............. 16,393 16,393 -- --
Ronald A. Lake................. 6,557 6,557 -- --
Bruno Guazzoni................. 65,573 65,573 -- --
Claudio M. Guazzoni............ 247,342 72,161 175,181 *
David M. McCarthy.............. 230,949 55,768 175,181 *
Samuel L. Milbank.............. 164,018 42,639 121,379 *
Pacific Alliance Ltd. ......... 174,484 30,000 144,484 *
Heriot Holdings Ltd. .......... 140,000 15,000 125,000 *
The Bank of New York........... 349,998 349,998 -- --
First Union National Bank...... 200,001 200,001 -- --
Fleet Bank, N.A................ 200,001 200,001 -- --

- -------------------------

* Denotes less than 1%.

(1) Citadel Limited Partnership has informed us that Fisher Capital Ltd.,
Wingate Capital Ltd., Olympus Securities Ltd. and NP Partners beneficially
own, as of September 1, 1999, 2,019,123 1,210,143, 20,931 and 15,728 of our
shares, including shares underlying prepaid warrants, incentive warrants and
other warrants currently exercisable and exercisable within 60 days of
September 1, 1999. Each holder of prepaid warrants is prohibited from
exercising such warrants if exercise would cause the holder and its
affiliates to own a number of shares which, when added to the number of
shares of common stock beneficially owned 60 days prior to the date of

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41

such exercise plus any shares which were acquired during the 60 day period,
would be in excess of 10% of our common stock outstanding immediately
following such exercise. Therefore, the maximum number of shares of our
common stock that can be beneficially owned by Fisher, Wingate, Olympus and
NP Partners in the aggregate is 3,001,630 shares. Citadel has also informed
us that Kenneth C. Griffin, Citadel Limited Partnership and each of the
Citadel entities disclaims beneficial ownership of the shares of common
stock held by the other Citadel entities. Therefore, the shares represented
as being beneficially owned by Fisher and Wingate do not include shares
owned by each other or the shares owned by Olympus or NP Partners.

(2) Includes shares of common stock underlying 25% of the prepaid warrants,
which became exercisable on August 18 1999; also includes shares of common
stock underlying, incentive and other warrants.

(3) Does not include 75% of the shares underlying prepaid warrants, being an
aggregate of 1,104,369 shares, which are exercisable commencing on November
18, 1999 in three cumulative quarter-annual installments.

(4) Does not include 75% of the shares underlying prepaid warrants, being an
aggregate of 594,660 shares, which are exercisable commencing on November
18, 1999 in three cumulative quarter-annual installments.

(5) Does not include 75% of the shares underlying prepaid warrants, being an
aggregate of 242,719 shares, which are exercisable commencing on November
18, 1999 in three cumulative quarter-annual installments.

(6) Includes shares of common stock underlying warrants not registered pursuant
to this prospectus.

The sale of the selling stockholders' shares may be effected from time to
time in transactions, which may include block transactions by or for the account
of the selling stockholders, in the over-the-counter market or in negotiated
transactions, or through the writing of options on the selling stockholders'
shares, a combination of these methods of sale, or otherwise. Sales may be made
at fixed prices which may be changed, at market prices prevailing at the time of
sale, or at negotiated prices.

The selling stockholders may effect the transactions by selling their
shares directly to purchasers, through broker-dealers acting as agents for the
selling stockholders, or to broker-dealers who may purchase shares as principals
and thereafter sell the selling stockholders' shares from time to time in the
over-the-counter market, in negotiated transactions, or otherwise. In effecting
sales, brokers and dealers engaged by the selling stockholders may arrange for
other broker-dealers to participate in the resales. The selling stockholders may
enter into hedging transactions with broker-dealers, and in connection with
these transactions, broker-dealers may engage in short sales of the shares. The
selling stockholders may also sell shares short and deliver these shares to
close out their short positions. Selling stockholders may also enter into option
or other transactions with broker-dealers that involve the delivery of these
shares to the broker-dealers, who may then resell or otherwise transfer such
shares. A selling stockholder may also pledge these shares to a broker-dealer
who, upon a default, may sell or otherwise transfer these shares.

These broker-dealers, if any, may receive compensation in the form of
discounts, concessions or commissions from the selling stockholders and/or the
purchaser for whom such broker-dealers may act as agents or to whom they may
sell as principals or both, which compensation as to a particular broker-dealer
may be in excess of customary commissions.

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The selling stockholders and broker-dealers, if any, acting in connection
with these sales might be deemed to be "underwriters" within the meaning of
section 2(11) of the Securities Act. Any commission they receive and any profit
upon the resale of the securities might be deemed to be underwriting discounts
and commissions under the Securities Act.

We have advised the selling stockholders that during such time as they may
be engaged in a distribution of the common stock covered by this prospectus they
are required to comply with Regulation M promulgated under the Securities
Exchange Act. With certain exceptions, Regulation M precludes any selling
stockholder, any affiliated purchasers, and any broker-dealer or other person
who participates in such distribution from bidding for or purchasing, or
attempting to induce any person to bid for or purchase any security which is the
subject of the distribution until the entire distribution is complete.
Regulation M also prohibits any bids or purchases made in order to stabilize the
price of a security in connection with the distribution of that security. All of
the foregoing may affect the marketability of our common stock.

Sales of any shares of common stock by the selling stockholders may depress
the price of the common stock in any market that may develop for the common
stock.

Any securities covered by this prospectus that qualify for sale pursuant to
SEC Rule 144 under the Securities Act may be sold under that Rule rather than
pursuant to this prospectus.

There can be no assurance that the selling stockholders will sell any or
all of the shares of common stock covered by this prospectus.

LEGAL MATTERS

The validity of the shares of our common stock covered by this prospectus
has been passed upon by Cooperman Levitt Winikoff Lester & Newman, P.C., New
York, New York. Certain members of this firm own shares of our common stock.

EXPERTS

The consolidated financial statements of Robotic Vision Systems, Inc. and
subsidiaries as of September 30, 1998 and 1997, and for each of the three years
in the period ended September 30, 1998, and the related financial statement
schedule included in this prospectus have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report appearing herein, and has been
so included in reliance upon the report of such firm given upon their authority
as experts in accounting and auditing.

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AVAILABLE INFORMATION

We have filed a registration statement, including exhibits, schedules and
amendments, with the SEC pursuant to the Securities Act with respect to this
offering of our securities. This prospectus is part of the registration
statement but does not contain all of the information in the registration
statement. We refer you to the registration statement for further information
about us, our securities and this offering. Statements in this prospectus about
documents filed as exhibits to the registration statement are necessarily
summaries of these documents, and each of these statements is qualified in its
entirety by reference to the copy of the applicable document filed with the SEC.
The registration statement is available for inspection at the SEC's Public
Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. The public may
obtain information about the operation of the Public Reference Room by calling
the SEC at 1-800-SEC-0330. In addition, the SEC maintains an Internet site that
contains the registration statement. The address of the SEC's Internet site is
http://www.sec.gov.

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ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULE

PAGE
----

Independent Auditors' Report................................ F-2
Consolidated Balance Sheets as of September 30, 1998 and
1997...................................................... F-3
Consolidated Statements of Operations for the Years Ended
September 30, 1998, 1997 and 1996......................... F-4
Consolidated Statements of Stockholders' Equity for the
Years Ended September 30, 1998, 1997 and 1996............. F-5
Consolidated Statements of Cash Flows for the Years Ended
September 30, 1998, 1997 and 1996......................... F-6
Notes to Consolidated Financial Statements for the Years
Ended September 30, 1998, 1997 and 1996................... F-8
Schedule II: Valuation and Qualifying Accounts.............. F-29
Condensed Consolidated Balance Sheets as of June 30, 1999
(unaudited) and September 30, 1998........................ F-30
Condensed Consolidated Statements of Operations for the Nine
Months Ended June 30, 1999 and 1998 (unaudited)........... F-31
Condensed Consolidated Statements of Cash Flows for the Nine
Months Ended June 30, 1999 and 1998 (unaudited)........... F-32
Notes to Condensed Consolidated Financial Statements for the
Nine Months Ended June 30, 1999 and 1998 (unaudited)...... F-33

F-1
45

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders of
Robotic Vision Systems, Inc. and subsidiaries:

We have audited the accompanying consolidated balance sheets of Robotic
Vision Systems, Inc. and subsidiaries (the "Company") as of September 30, 1998
and 1997, 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. Our audits included the financial statement schedule listed in the
index at page F-1. These financial statements and financial statement schedule
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and financial statement
schedule 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, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company at September 30,
1998 and 1997, 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. Also, in our opinion, such financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.

/s/ DELOITTE & TOUCHE LLP

Boston, Massachusetts
January 18, 1999

F-2
46

ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1998 AND 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

1998 1997
--------- --------

ASSETS
Current Assets:
Cash and cash equivalents............................. $ 2,421 $ 8,811
Accounts receivable, net.............................. 32,367 50,563
Inventories........................................... 36,213 39,095
Deferred income taxes................................. -- 10,643
Prepaid expenses and other current assets............. 1,226 1,429
--------- --------
Total current assets.......................... 72,227 110,541
Plant and equipment, net.............................. 17,591 14,507
Deferred income taxes................................. 8,820 --
Goodwill, net of accumulated amortization of $840 and
$290............................................... 5,847 6,207
Other assets.......................................... 17,086 8,668
--------- --------
$ 121,571 $139,923
========= ========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable and current portion of long-term debt... $ 38,038 $ 10,623
Accounts payable...................................... 21,388 23,320
Accrued expenses and other current liabilities........ 21,073 19,623
Advance contract payments received.................... 1,216 1,816
--------- --------
Total current liabilities..................... 81,715 55,382
Long-term debt........................................ 3,059 6,414
Deferred income taxes................................. -- 1,823
Other liabilities..................................... -- 727
--------- --------
Total liabilities............................. 84,774 64,346
--------- --------
Commitments and contingencies (Note 11)...............
Stockholders' Equity:
Common stock, $0.01 par value; shares authorized
50,000 shares issued and outstanding;
1998 -- 24,870 and 1997 -- 24,438.................. 249 244
Additional paid-in capital............................ 168,493 166,623
Accumulated deficit................................... (131,962) (91,457)
Cumulative translation adjustment..................... 17 167
--------- --------
Total stockholders' equity.................... 36,797 75,577
--------- --------
$ 121,571 $139,923
========= ========

See notes to consolidated financial statements

F-3
47

ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

1998 1997 1996
-------- -------- --------

Revenues...................................... $169,007 $169,342 $153,975
Cost of revenues.............................. 96,443 92,412 82,108
Inventory provisions.......................... 16,562 1,435 3,052
-------- -------- --------
Gross profit.................................. 56,002 75,495 68,815
-------- -------- --------
Operating costs and expenses:
Research and development expenses............. 28,121 25,465 21,834
Selling, general and administrative
expenses.................................... 58,877 48,259 44,861
Merger expenses............................... 623 69 2,661
Severance and other charges................... 6,615 -- --
Interest income............................... (92) (767) (1,148)
Interest expense.............................. 2,363 1,076 926
-------- -------- --------
Total operating costs and
expenses......................... 96,507 74,102 69,134
-------- -------- --------
Income (loss) before income taxes............. (40,505) 1,393 (319)
Provision (benefit) for income taxes.......... -- 745 (1,154)
-------- -------- --------
Net income (loss)............................. $(40,505) $ 648 $ 835
======== ======== ========
Net income (loss) per share:
Basic....................................... $ (1.65) $ 0.03 $ 0.04
Diluted..................................... $ (1.65) $ 0.03 $ 0.04
Weighted Average shares:
Basic....................................... 24,613 23,718 22,092
Diluted..................................... 24,613 23,967 23,385

See notes to consolidated financial statements

F-4
48

ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
(IN THOUSANDS)

COMMON STOCK
------------------ ADDITIONAL UNREALIZED CUMULATIVE
NUMBER PAID-IN ACCUMULATED DEFERRED GAIN ON TRANSLATION
OF SHARES AMOUNT CAPITAL DEFICIT COMPENSATION INVESTMENTS ADJUSTMENT
--------- ------ ---------- ----------- ------------ ----------- -----------

BALANCE, OCTOBER 1, 1995...... 20,440 $204 $138,763 $ (94,766) $(60) $ -- $ 208
Shares issued in conjunction
with the exercise of stock
options and warrants........ 1,511 15 5,821 -- -- -- --
Shares issued in connection
with private placement, net
of offering costs........... 1,233 12 10,116 -- -- -- --
Shares issued in connection
with the acquisition of
Northeast Robotics, Inc,
accounted for as a
purchase.................... 139 1 2,675 -- -- -- --
Warrants issued for
professional services....... -- -- 74 -- -- -- --
Other stock transactions...... 9 1 158 -- 60 -- --
Change in year end of pooled
companies................... -- -- -- (618) -- -- --
Change in net unrealized
holding gains............... -- -- -- -- -- 147 --
Translation adjustment........ -- -- -- -- -- -- (33)
Net income.................... -- -- -- 835 -- -- --
------ ---- -------- --------- ---- ----- -----
BALANCE, SEPTEMBER 30, 1996... 23,332 233 157,607 (94,549) -- 147 175
Shares issued in connection
with the exercise of stock
options and warrants........ 384 4 1,839 -- -- -- --
Other stock transactions...... (104) (1) (488) -- -- -- --
Shares issued in connection
with private placement, net
of offering costs........... 826 8 7,665 -- -- -- --
Change in year end of pooled
companies................... -- -- -- 2,444 -- -- --
Change in net unrealized
holding gains............... -- -- -- -- -- (147) --
Translation adjustment........ -- -- -- -- -- -- (8)
Net income.................... -- -- -- 648 -- -- --
------ ---- -------- --------- ---- ----- -----
BALANCE, SEPTEMBER 30, 1997... 24,438 244 166,623 (91,457) -- -- 167
Shares issued in connection
with the exercise of stock
options and warrants........ 161 2 373 -- -- -- --
Shares issued in connection
with license agreement and
non-competition agreement... 271 3 1,497 -- -- -- --
Translation adjustment........ -- -- -- -- -- -- (150)
Net loss...................... -- -- -- (40,505) -- -- --
------ ---- -------- --------- ---- ----- -----
BALANCE, SEPTEMBER 30, 1998... 24,870 $249 $168,493 $(131,962) $ -- $ -- $ 17
====== ==== ======== ========= ==== ===== =====

TOTAL
STOCKHOLDERS'
EQUITY
-------------

BALANCE, OCTOBER 1, 1995...... $ 44,349
Shares issued in conjunction
with the exercise of stock
options and warrants........ 5,836
Shares issued in connection
with private placement, net
of offering costs........... 10,128
Shares issued in connection
with the acquisition of
Northeast Robotics, Inc,
accounted for as a
purchase.................... 2,676
Warrants issued for
professional services....... 74
Other stock transactions...... 219
Change in year end of pooled
companies................... (618)
Change in net unrealized
holding gains............... 147
Translation adjustment........ (33)
Net income.................... 835
--------
BALANCE, SEPTEMBER 30, 1996... 63,613
Shares issued in connection
with the exercise of stock
options and warrants........ 1,843
Other stock transactions...... (489)
Shares issued in connection
with private placement, net
of offering costs........... 7,673
Change in year end of pooled
companies................... 2,444
Change in net unrealized
holding gains............... (147)
Translation adjustment........ (8)
Net income.................... 648
--------
BALANCE, SEPTEMBER 30, 1997... 75,577
Shares issued in connection
with the exercise of stock
options and warrants........ 375
Shares issued in connection
with license agreement and
non-competition agreement... 1,500
Translation adjustment........ (150)
Net loss...................... (40,505)
--------
BALANCE, SEPTEMBER 30, 1998... $ 36,797
========

See notes to consolidated financial statements

F-5
49

ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996
(IN THOUSANDS)

1998 1997 1996
-------- -------- -------

OPERATING ACTIVITIES
Net income (loss).................................. $(40,505) $ 648 $ 835
Adjustments to reconcile net income (loss) to net
cash (used in) provided by operating activities:
Deferred income taxes............................ -- (93) (2,881)
Depreciation and amortization.................... 8,769 5,895 3,938
Gain on disposal of business..................... -- (812) --
Other............................................ (164) (218) 1,318
Changes in operating assets and liabilities (net
of effects of business acquired):
Accounts receivable........................... 18,196 (20,084) (7,304)
Inventories................................... 2,882 (14,093) (6,781)
Prepaid expense and other current assets...... 203 (514) (873)
Other assets.................................. (7,024) (4,811) (2,845)
Accounts payable.............................. (1,932) 10,709 2,433
Accrued expenses and other current
liabilities................................. 1,450 4,732 3,297
Advanced contract payments received........... (600) (10) (674)
Other liabilities............................. -- (82) (164)
-------- -------- -------
Net cash (used in) provided by operating
activities.................................. (18,725) (18,733) (9,701)
-------- -------- -------
INVESTING ACTIVITIES:
Proceeds from maturity of investments.............. -- 2,319 1,000
Additions to plant and equipment, net.............. (9,137) (7,915) (6,972)
Proceeds from sale of business..................... -- 952 --
Payment for purchase of business................... -- (3,144) (77)
-------- -------- -------
Net cash used in investing activities......... (9,137) (7,788) (6,049)
-------- -------- -------
FINANCING ACTIVITIES:
Proceeds from the issuance of common stock and
warrants -- private equity placement (less
offering costs).................................. -- 7,673 10,093
Proceeds from the exercise of stock options and
warrants......................................... 375 1,271 2,428
Purchase of treasury stock......................... -- (650) --
Net proceeds from (payments of) short-term
borrowings....................................... 28,911 (2,833) 9,752
Proceeds from long-term borrowings................. -- 8,000 245
Repayment of long-term borrowings.................. (7,828) (1,864) (5,918)
-------- -------- -------
Net cash provided by financing activities..... 21,458 11,597 16,600
-------- -------- -------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH
EQUIVALENTS...................................... 14 189 71

F-6
50

1998 1997 1996
-------- -------- -------

NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS...................................... (6,390) (14,735) 921
CASH AND CASH EQUIVALENTS:
Beginning of year................................ 8,811 23,546 18,859
-------- -------- -------
End of year...................................... $ 2,421 $ 8,811 $19,780
======== ======== =======
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid...................................... $ 2,311 $ 1,027 $ 841
======== ======== =======
Taxes paid......................................... 244 $ 218 $ 1,415
======== ======== =======
NONCASH INVESTING AND FINANCING ACTIVITIES:
Issuance of common stock and subordinated note
payable in connection with technology license
agreement and non-competition agreement.......... $ 3,750 -- --
======== ======== =======
Income tax benefit relating to the exercise of
stock options.................................... 16 $ 572 $ 3,408
======== ======== =======
Liabilities incurred in connection with acquisition
of business...................................... -- $ 902 --
======== ======== =======
Property and equipment acquired under capital
leases........................................... -- $ 22 $ 99
======== ======== =======
Issuance of common stock to acquire Northeast
Robotics, Inc. .................................. -- -- $ 2,676
======== ======== =======

See notes to consolidated financial statements

F-7
51

ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED SEPTEMBER 30, 1998, 1997 AND 1996

1. BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

a. DESCRIPTION OF BUSINESS -- Robotic Vision Systems, Inc. ("RVSI") and
subsidiaries (the "Company") designs, manufactures, markets and sells automated
one dimensional ("1-D"), two dimensional ("2-D") and three dimensional ("3-D")
machine vision based products and systems for inspection, measurement and
identification, and is a leader in advanced electro-optical sensor technology.

b. OPERATIONS -- The Company incurred a loss for the fiscal year ended
September 30, 1998 primarily due to the effects of a substantial decline in
revenues resulting from a downturn in the semiconductor capital equipment
industry. Prior to the restatement of the Company's consolidated financial
statements for the acquisition of Vanguard Automation, Inc. as a pooling of
interests, the Company had been consistently profitable, earning $8.2 million in
fiscal 1997 and $9.7 million in fiscal 1996.

During fiscal 1998, management took a series of steps to reduce expenses
and restructure operations in response to this industry downturn. In the second,
third and fourth quarters of fiscal 1998, the Company instituted workforce
reductions aggregating 39%, curtailed discretionary spending and capital
expenditures, combined its Acuity CiMatrix operations and sold the assets and
technology of its aircraft safety product line (which did not have significant
operations) in December 1998. Concurrently, the Company has successfully
introduced a range of new products designed to broaden sales beyond the
semiconductor industry.

In March 1998, the Company entered into a new bank financing agreement
(Note 9) that contains restrictive covenants with which the Company has not been
in compliance. All instances of noncompliance have been waived by the banks
through January 29, 1999; however, absent continuation of waivers, the Company
will be in noncompliance at the end of the waiver period.

Management continues to control expenses, inventory levels and capital
expenditures; is working with existing lenders to amend the Company's existing
bank financing agreement to provide new covenants; and is pursuing a number of
new debt or equity financing alternatives. The Company has signed a term sheet
with an institutional investor for a preferred equity financing which includes a
beneficial conversion feature and also provides for warrants. Proceeds of the
financing will be drawn down in two rounds with the first round available
immediately for $6.0 million and the second round available in three months for
$6.8 million. The Company expects to complete the first round of this
transaction in the near term. Management believes that through a combination of
proceeds from the preferred equity financing, obtaining additional external
financing, its domestic banks continuing to waive non-compliance of restrictive
covenants and cash flow from operating activities, the Company will have
sufficient liquidity through at least September 30, 1999 to fund its cash
requirements (See unaudited subsequent event Note 17).

c. PRINCIPLES OF CONSOLIDATION -- The consolidated financial statements
include the financial statements of Robotic Vision Systems, Inc. and its
subsidiaries, all of which are wholly-owned. All significant intercompany
transactions and balances have been eliminated

F-8
52
ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

in consolidation. The effects of changes in fiscal years of pooled companies
(Vanguard Automation, Inc in fiscal 1998 and Systemation Engineered Products,
Inc. and Computer Identics in fiscal 1996) are recorded as adjustments to
accumulated deficit.

d. REVENUES AND COST OF REVENUES -- The Company recognizes revenue on its
standard electronic inspection and measurement products upon shipment. Revenue
from the licensing of software is recognized when the software is delivered if
collectibility is probable and there are no significant vendor obligations.
Engineering service and support revenue is recognized when such services are
rendered. Warranty costs associated with products sold with warranty protection,
as well as other post-contract support obligations, are estimated based on the
Company's historical experience and recorded in the period the product is sold.

e. CASH AND CASH EQUIVALENTS -- Cash and cash equivalents includes money
market accounts and certain debt securities issued by the United States
government purchased with an original maturity of three months or less.

f. INVENTORIES -- Inventories are stated at the lower of cost (using the
first-in, first-out cost flow assumption) or market.

g. PLANT AND EQUIPMENT -- Plant and equipment is recorded at cost less
accumulated depreciation and amortization. Depreciation is computed by the
straight-line method over estimated lives ranging from two to eight years.
Leasehold improvements are amortized over the lesser of their respective
estimated useful lives or lease terms.

h. INTANGIBLE ASSETS -- Goodwill is being amortized over 15 years; a
technology license and non-competition agreement are being amortized over 10
years. The Company reviews its long-lived assets, including goodwill and other
identifiable intangibles for impairment whenever events or changes in
circumstances indicate that the carrying amount of the assets may not be fully
recoverable. A review for impairment includes comparing the carrying value of an
asset to an estimate of the undiscounted net future cash inflows over the life
of the asset. An asset is considered to be impaired when the carrying value
exceeds the calculation of the undiscounted net future cash inflows or fair
market value. An impairment loss is defined as the amount of the excess of the
carrying value over the fair market value of the asset.

i. SOFTWARE DEVELOPMENT COSTS -- Software development costs are
capitalized in accordance with SFAS No. 86. Such costs are capitalized only to
the extent of costs of producing product masters subsequent to the establishment
of their technological feasibility and capitalization ends when the product is
available for general release to customers. Capitalized software development
costs are amortized over the estimated useful lives (generally five years) on a
straight-line basis or the ratio of current revenues to total expected revenues
in a product's expected life, if greater. Amortization begins in the period in
which the related product is available for general release to customers. The
Company reviews the unamortized capitalized costs of its underlying products to
the net realizable value of these products. An impairment loss is recorded in an
amount by which the unamortized capitalized costs of a computer software product
exceeds the net realizable value of that asset.

F-9
53
ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

j. RESEARCH AND DEVELOPMENT COSTS -- The Company charges research and
development costs for Company-funded projects to operations as incurred.
Research and development costs which are reimbursable under customer-funded
contracts are treated as contract costs.

k. INCOME TAXES -- The Company accounts for income taxes under the
provisions of SFAS No. 109, "Accounting for Income Taxes," which requires
recognition of deferred tax assets and liabilities for the expected future tax
consequences of events that have been included in the Company's consolidated
financial statements or tax returns. Under this method, deferred tax assets and
liabilities are determined based on the differences between the financial
accounting and tax bases of assets and liabilities using enacted tax rates in
effect for the year in which the differences are expected to reverse.

l. FOREIGN CURRENCY TRANSLATION -- Assets and liabilities of the Company's
European subsidiaries are translated at the exchange rate in effect at the
balance sheet date. Income statement accounts are translated at the average
exchange rate for the year. The resulting translation adjustments are excluded
from operations and accumulated as a separate component of stockholders' equity.
Transaction gains (losses) are included in net income and totaled $106,000,
$(267,000) and $(52,000) in 1998, 1997 and 1996, respectively.

m. NET INCOME (LOSS) PER COMMON SHARE -- In 1998, the Company adopted
Statement of Financial Accounting Standards No. 128, Earnings Per Share (SFAS
128). Under SFAS 128, basic income (loss) per common share is computed using the
weighted average number of common shares outstanding during each year. Diluted
net income per common share reflects the effect of the Company's outstanding
options (using the treasury stock method), except where such options would be
anti-dilutive. Prior year's net income per share have been restated to conform
to SFAS 128.

n. FAIR VALUE OF FINANCIAL INSTRUMENTS -- The following methods and
assumptions were used to estimate the fair value of each class of financial
instruments:

a) Cash and Cash Equivalents -- The carrying amounts approximate fair
value because of the short maturity of these instruments.

b) Receivables -- The carrying amount approximates fair value because of
the short maturity of these instruments.

c) Debt -- The carrying amounts approximate fair value based on borrowing
rates currently available to the Company for loans with similar terms.

o. USE OF 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's most significant estimates relate to the deferred income tax
valuation allowance, allowance for doubtful accounts receivable, reserve for
excess and obsolete inventory, and warranty reserve.

F-10
54
ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

p. RECLASSIFICATIONS -- Certain amounts in the 1996 and 1997 financial
statements have been reclassified to conform with the 1998 presentation.

q. RECENT ACCOUNTING PRONOUNCEMENTS -- In June 1997, the Financial
Accounting Standards Board ("FASB") issued SFAS No. 130, "Reporting
Comprehensive Income", and SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information", both of which will be effective for the
Company in fiscal year 1999. SFAS No. 130 establishes standards for the
reporting and display of comprehensive income and its components (revenues,
expenses, gains and losses) in a full set of general purpose financial
statements. SFAS No. 131 establishes standards for the way that public business
enterprises report selected information about operating segments. SFAS No. 131
also establishes standards for related disclosures about products and services,
geographic areas, and major customers. The implementation of SFAS Nos. 130 and
131 will require some additional disclosures in the Company's consolidated
financial statements for the year ended September 30, 1999.

In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits", which the Company is required
to implement no later than fiscal year 1999. SFAS No. 132 is an amendment to
SFAS Nos. 87, 88 and 106. The statement standardizes disclosure requirements for
pension and postretirement benefits to the extent practicable, requires
additional information on changes in the benefit obligations and fair values of
plan assets that will facilitate financial analysis and eliminates certain other
disclosures. The implementation of SFAS No. 132 is not expected to have a
material effect on the Company's consolidated financial statements.

In April 1998, the Accounting Standards Executive Committee issued
Statement of Position ("SOP") 98-5, "Reporting on the Costs of Start-Up
Activities", which the Company is required to implement no later than fiscal
year 2000. SOP 98-5 establishes standards that require start-up and organization
costs to be expensed as incurred. The implementation of SOP 98-5 is not expected
to have a material effect on the Company's consolidated financial statements.

In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", and is effective for the Company in the
first quarter of fiscal year 2000. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including derivative instruments
embedded in other contracts, and for hedging activities. The Company believes
the adoption of SFAS No. 133 will not have a material effect on its consolidated
financial statements.

2. ACQUISITIONS

a. VANGUARD AUTOMATION, INC.

On December 9, 1997, the Company acquired the outstanding shares of
Vanguard Automation, Inc. ("Vanguard") for approximately 3,391,000 shares of the
Company's common stock, having a market value at the date of the merger of
approximately $45,776,000. Outstanding Vanguard stock options were converted
into stock options to purchase approximately 152,000 shares of the Company's
common stock. Outstanding Vanguard warrants were converted into warrants to
purchase approximately 182,000 shares of the Company's common stock. Vanguard
produces and markets automated manufac-

F-11
55
ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

turing equipment used in the assembly of certain types of semiconductor
packaging processes, including ball grid array and chip scale packages. This
acquisition has been accounted for as a pooling of interests and, accordingly,
the consolidated financial statements have been restated to include the accounts
of Vanguard for all periods presented. Expenses of $623,000, relating primarily
to investment banking, legal and accounting fees, were incurred relating to this
merger and charged to expense in fiscal 1998.

The accompanying September 30, 1996 consolidated financial statements
include Vanguard's amounts for the years ended December 31, 1996. The
accompanying consolidated financial statements for the year ended September 30,
1997 include the operations of Vanguard on a common fiscal year. Vanguard's net
loss for the period October 1, 1996 through December 31, 1996 of $2,444,000,
included twice in the accompanying consolidated statements of operations for the
fiscal years ended September 30, 1997 and 1996 as a result of conforming fiscal
years, has been included as an adjustment to consolidated accumulated deficit in
fiscal 1997.

Detailed below is the effect on the Company's results of operations for
fiscal 1997 and fiscal 1996 as a result of the Company's acquisition of
Vanguard.

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) RVSI VANGUARD ELIMINATIONS COMBINED
- ---------------------------------------- -------- -------- ------------ --------

1997
Revenues............................ $152,103 $18,218 $(979) $169,342
Net income (loss)................... 8,245 (7,511) (86) 648
Net income per share................ 0.38 0.03
1996
Revenues............................ $143,540 $10,977 $(542) $153,975
Net income (loss)................... 9,726 (8,851) (40) 835
Net income per share................ 0.45 0.04

b. TRIGON

On June 30, 1997, the Company acquired Trigon Technologies, Inc.
("Trigon"), a privately owned company located in Farmington Hills, Michigan.
Trigon markets a line of 2-D machine vision products for the semiconductor
industry. The purchase price was $3,000,000 in cash plus contingent
consideration based upon the sales level of certain products sold by Trigon,
over a five-year period.

This acquisition has been accounted for as a purchase and, accordingly, the
results of Trigon are included in the consolidated statements of operations of
the Company since the date of acquisition and the purchase price (including
acquisition costs) has been allocated to net assets acquired based upon their
fair values. Goodwill relating to the acquisition of $2,997,000 is being
amortized over 15 years. The historical results of operations of Trigon were not
material to the operations of the Company.

F-12
56
ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

c. SYSTEMATION ENGINEERED PRODUCTS, INC.

On October 1, 1996, the Company acquired the outstanding shares of
Systemation Engineered Products, Inc. ("SEP") for 1,740,000 shares of the
Company's common stock, having a market value at the date of the merger of
approximately $22,838,000. SEP designs manufactures, markets and sells
specialized high speed production machinery for the electronics component
industry. SEP's product lines include tape and reel packaging equipment and
automatic optical inspection systems. This acquisition has been accounted for as
a pooling of interests and, accordingly, the consolidated financial statements
have been restated to include the accounts of SEP for all periods presented. The
accompanying consolidated financial statements for the years ended September 30,
1998, 1997 and 1996 include the operations of SEP on a common fiscal year.
Expenses of $904,000 were incurred related to this merger.

d. COMPUTER IDENTICS CORPORATION

On August 30, 1996, the Company acquired the outstanding shares of Computer
Identics Corporation ("CI") for approximately 2,127,000 shares of the Company's
common stock, having a market value at the date of the merger of approximately
$30,580,000. Outstanding CI stock options were converted into options to
purchase approximately 186,000 shares of the Company's common stock. Outstanding
CI warrants were converted into warrants to purchase approximately 39,000 shares
of the Company's common stock. CI designs, manufactures, markets and sells
standard barcode products, data collection networks and systems for data
collection and material handling/industrial markets. This acquisition has been
accounted for as a pooling of interests and accordingly, the consolidated
financial statements have been restated to include the accounts of CI for all
periods presented. Expenses of $1,547,000 were incurred related to this merger.

e. NORTHEAST ROBOTICS, INC.

On May 30, 1996, the Company consummated a merger with Northeast Robotics,
Inc. ("NER"), a privately owned company located in New Boston, New Hampshire,
pursuant to which NER became a wholly owned subsidiary of the Company (the "NER
Merger"). NER markets a line of patented illumination products to perform
reliably in difficult imaging applications involving highly reflective or uneven
surfaces. As a consequence of the NER Merger, the Company issued approximately
139,000 shares of its common stock (which had a market value of approximately
$2,676,000 on the date the NER Merger was consummated) to the shareholders of
NER in exchange for all of the outstanding shares of NER common stock.

This acquisition has been accounted for as a purchase and, accordingly, the
results of NER are included in the consolidated statements of operations of the
Company since the date of acquisition and the purchase price (including
acquisition costs) has been allocated to net assets acquired based upon their
fair values. Goodwill relating to the acquisition of $2,688,000 is being
amortized over 15 years. The historical results of operations of NER were not
material to the operations of the Company.

f. INTERNATIONAL DATA MATRIX, INC.

On October 23, 1995, the Company acquired the outstanding shares of
International Data Matrix, Inc. ("IDM") for approximately 370,000 shares of the
Company's common

F-13
57
ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

stock, having a market value at the date of the merger of approximately
$8,183,000. IDM was a manufacturer and supplier of two dimensional bar code
reading systems. This acquisition has been accounted for as a pooling of
interests and accordingly, the consolidated financial statements have been
restated to include the accounts of IDM for all periods presented. Expenses of
$445,000 were incurred related to this merger.

3. ACCOUNTS RECEIVABLE

Accounts receivable at September 30, 1998 and 1997 consisted of the
following:

1998 1997
------- -------
(IN THOUSANDS)

Billed accounts receivable................. $30,923 $47,638
Unbilled accounts receivable............... 2,444 5,641
------- -------
Total...................................... 33,367 53,279
Less allowance for doubtful accounts
receivable............................... (1,000) (2,716)
------- -------
Accounts receivables, net.................. $32,367 $50,563
======= =======

Unbilled receivables primarily relate to sales recorded on standard
products which have been shipped, but have not yet been finally accepted by the
customer. The Company has no significant remaining obligations relating to these
unbilled receivables and collectibility is probable. The Company believes that
all of its unbilled receivables at September 30, 1998 will be billed and
collected during the next twelve months.

4. INVENTORIES

Inventories at September 30, 1998 and 1997 consisted of the following:

1998 1997
------- -------
(IN THOUSANDS)

Raw materials.............................. $17,124 $20,638
Work in process............................ 10,429 13,158
Finished goods............................. 8,660 5,299
------- -------
Total............................ $36,213 $39,095
======= =======

INVENTORY PROVISIONS -- During the third and fourth quarters of fiscal
1998, the Company took provisions of $4.5 million and $12.1 million,
respectively, primarily for excess and obsolete inventories related principally
to its semiconductor inspection and handling equipment. These provisions largely
reflected reduced demand of older generation products as a result of the severe
semiconductor industry downturn. The Company believes that the inventory
provisions taken in fiscal 1998 have reduced the carrying value of inventories
to their appropriate net realizable value. These amounts have been recorded as
"inventory provisions" as part of the presentation of cost of sales in the
accompanying consolidated financial statements. The inventory balances at
September 30, 1998, net of inventory provisions, contain older generation
products of approximately $4.5 million.

F-14
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ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

5. INCOME TAXES

The components of income (loss) before income tax provision (benefit), for
the fiscal years ended September 30, 1998, 1997 and 1996 are as follows:

1998 1997 1996
-------- ------- -------
(IN THOUSANDS)

Domestic................................ $(36,758) $ 2,114 $ (118)
Foreign................................. (3,747) (721) $ (201)
-------- ------- -------
Total......................... $(40,505) $ 1,393 $ (319)
======== ======= =======

The income tax provision (benefit) for the fiscal years ended September 30,
1998, 1997 and 1996 consisted of the following:

1998 1997 1996
-------- ------- -------
(IN THOUSANDS)

Current:
Federal............................... $ -- $ 737 $ 4,279
State................................. -- 110 1,024
Foreign............................... -- (9) 38
Utilization of net operating loss
carryforwards...................... -- -- (3,614)
-------- ------- -------
-- 838 1,727
-------- ------- -------
Deferred:
Federal............................... (18,044) 1,187 (3,802)
State................................. (2,140) 246 (465)
Change in valuation allowance......... 20,184 (1,526) 1,386
-------- ------- -------
-- (93) (2,881)
-------- ------- -------
Total......................... $ -- $ 745 $(1,154)
======== ======= =======

The income tax benefits related to the exercise of stock options reduces
taxes currently payable or increases net deferred tax assets, and is credited to
additional paid-in capital.

F-15
59
ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

A reconciliation between the statutory U.S. Federal income tax rate and the
Company's effective tax rate for the fiscal years ended September 30, 1998, 1997
and 1996 is as follows:

1998 1997 1996
----- ----- -------

U.S. Federal statutory rate.................. (34.0)% 34.0% (34.0)%
Increases (reductions) due to:
State taxes -- net of Federal tax
benefit................................. (4.0) 13.7 223.5
Utilization of net operating loss
carryforwards........................... -- -- 1,132.9
Anticipated future utilization of net
operating loss carryforwards............ -- (88.9) (457.1)
Net operating loss not producing current
tax benefits............................ 34.6 203.5 985.3
Exempt income of foreign sales
corporation............................. (55.1) (6.9)
Worthless stock deduction relating to
liquidation of foreign subsidiaries..... (55.1)
Other -- net............................... 3.4 1.4 60.3
----- ----- -------
Total.............................. 0.0% 53.5% (361.8)%
===== ===== =======

The net deferred tax asset at September 30, 1998, 1997 and 1996 is
comprised of the following:

1998 1997 1996
-------- -------- --------
DEFERRED TAX ASSETS (LIABILITIES): (IN THOUSANDS)
- ---------------------------------- --------------------------------

Net operating loss carryforwards...... $ 27,257 $ 17,021 $ 16,941
Tax credit carryforwards.............. 2,315 2,655 2,853
Accrued liabilities................... 2,754 2,277 1,881
Inventories........................... 6,899 2,427 2,712
Receivables........................... 418 1,078 486
Property and equipment................ 361 (129) (367)
Merger expenses....................... 329 271 706
Software development costs............ (3,538) (2,043) (543)
Other................................. 4 176 (75)
-------- -------- --------
36,799 23,733 24,594
Less valuation allowance............ (27,979) (14,913) (16,439)
-------- -------- --------
Total....................... $ 8,820 $ 8,820 $ 8,155
======== ======== ========

As of September 30, 1998, the Company had U.S. Federal net operating loss
carryforwards of approximately $72,527 of which $30,420 are subject to annual
limitations because of the changes in ownership, as defined in the Internal
Revenue Code. Such loss carryforwards expire in the fiscal years 1999 through
2013. The utilization of the

F-16
60
ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

carryforwards to offset future tax liabilities is dependent upon the Company's
ability to generate sufficient taxable income during the carryforward periods.
The Company has recorded a valuation allowance to reduce the net deferred tax
asset to an amount that management believes is more likely than not to be
realized. The change in the valuation allowance in fiscal 1998 relates primarily
to the fiscal 1998 operating loss.

6. PLANT AND EQUIPMENT

Plant and equipment at September 30, 1998 and 1997 consisted of the
following:

1998 1997
-------- --------
(IN THOUSANDS)

Land..................................... $ 490 $ 490
Machinery and equipment.................. 10,475 7,711
Furniture, fixtures and other
equipment.............................. 13,163 10,068
Demonstration equipment.................. 7,531 7,334
Leasehold improvements................... 2,492 1,940
-------- --------
Total.......................... 34,151 27,543
Less accumulated depreciation and
amortization........................... (16,560) (13,036)
-------- --------
Plant and equipment -- net............. $ 17,591 $ 14,507
======== ========

7. OTHER ASSETS

Other assets at September 30, 1998 and 1997 consisted of the following:

1998 1997
------- ------
(IN THOUSANDS)

Software development costs, net of
accumulated amortization of $3,492 and
$2,251,
respectively.............................. $11,812 $7,233
License and non-competition agreement, net
of amortization of $94.................... 3,656 --
Other....................................... 1,618 1,435
------- ------
Total............................. $17,086 $8,668
======= ======

Certain software development costs totaling $7,397, $4,842 and $2,630 have
been capitalized during the fiscal years ended September 30, 1998, 1997 and 1996
respectively. Amortization expense relating to software development costs for
the fiscal years ended September 30, 1998, 1997, and 1996 was $2,072, $962 and
$551, respectively.

F-17
61
ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

8. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities at September 30, 1998
and 1997 consisted of the following:

1998 1997
------- -------
(IN THOUSANDS)

Accrued wages and related employee
benefits................................. $ 5,948 $ 5,198
Accrued sales commissions.................. 5,468 4,028
Accrued warranty and other product related
costs.................................... 2,826 2,666
Accrued severance and other charges........ 2,099 --
Other...................................... 4,732 7,731
------- -------
Total............................ $21,073 $19,623
======= =======

Severance and other charges -- During fiscal 1998, the Company took
multiple steps to reduce its expenses and to lower the level of revenues
necessary for break-even results of operations. These steps include a 10%
workforce reduction in April 1998, a 15% workforce reduction in June 1998 and an
additional 16% workforce reduction in September 1998, as well as curtailing
discretionary spending and capital expenditures. In June 1998, the Company
combined its Acuity 2-D machine vision operations with its CiMatrix 1-D and 2-D
barcode reading and data collection operations.

Primarily as a result of these steps, the Company took a total of $6.6
million in charges in fiscal 1998. $3.8 million was recorded for severance
payments to approximately 400 terminated employees (all of whom were terminated
prior to September 30, 1998). The terminated employees represented all functions
across all operating divisions of the Company. Of the $3.8 million,
approximately $2.4 million was paid in cash to employees prior to September 30,
1998. $1.5 million was recorded for costs associated with changing distributors
in Asia. The charge was recorded in the quarter ended March 31, 1998. Of this
charge, $1.0 million represents the write-off of the Company's investment in its
bankrupt Korean distributor. The Company terminated its business relationship
with the distributor after such distributor could no longer meet its commitment
to service the Company's existing installed base of customers in Korea nor meet
the Company's sales goals. The remaining charge represents termination of the
distributor of the Company's product in Japan. The terms of an agreement to end
the Company's business relationship with the Japanese distributor were reached
at the end of the Company's second fiscal quarter. Under this agreement, the
Company was to repurchase from the distributor certain demonstration equipment
used in selling the Company's product and settle outstanding commitments of the
distributor. The approximately $0.5 million charge represents the Company's
liability under the agreement, net of the realizable value of assets recovered
from the Japanese distributor.

The charges also included a $1.1 million non-cash write-down of previously
capitalized software costs associated with currently inactive products and $0.2
million in costs associated with the consolidation of Acuity and CiMatrix
operations.

F-18
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ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The components of the non-recurring charges, related fiscal 1998
expenditures and remaining liability at September 30, 1998 are detailed below:

COSTS EXPENDITURES LIABILITY
------ ------------ ---------
(IN THOUSANDS)

Severance payments to employees....... $3,787 $2,403 $1,384
Write-off of software development
costs............................... 1,113 1,113 --
Costs for changes in Asia
distributors........................ 1,500 1,000 500
Costs to consolidate Acuity CiMatrix
operations.......................... 215 -- 215
------ ------ ------
Total....................... $6,615 $4,516 $2,099
====== ====== ======

The Company expects that the balance at September 30, 1998 will be
paid in cash during fiscal 1999.

9. NOTES PAYABLE AND LONG-TERM DEBT

Notes payable and long-term debt at September 30, 1998 and 1997 consisted
of the following:

1998 1997
------- --------
(IN THOUSANDS)

Lines of credit with domestic banks(a).... $37,500 $ 6,589
Term loan with domestic bank(a)........... -- 7,600
Subordinated note payable(b).............. 2,250 --
Note payable(c)........................... -- 2,000
Other borrowings.......................... 1,347 848
------- --------
Total notes payable and
long-term debt............... 41,097 17,037
Less notes payable and current portion of
long-term debt.......................... (38,038) (10,623)
------- --------
Long-term debt............................ $ 3,059 $ 6,414
======= ========

- -------------------------

a. In March 1998, the Company entered into a new $37,500 revolving credit
agreement with three domestic banks, which replaced $19,500 in existing lines
of credit and $6,900 outstanding under a term loan. The new agreement has a
two-year term and bears interest at either the prime rate or LIBOR. At
September 30, 1998, the interest rate was the prime rate of 8.25%. Borrowings
are collateralized by substantially all of the domestic tangible and
intangible assets of the Company. The agreement, among other things, contains
certain financial covenants, including minimum levels of profitability,
liquidity and net worth, with which the Company has not been in compliance.
The banks have waived all instances of noncompliance through January 29,
1999; however, absent continuation of the waivers, the Company will be in
noncompliance at the

F-19
63
ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

expiration of the waiver period. Accordingly, borrowings under the agreement
at September 30, 1998, have been classified as current. The Company is
working with its banks to modify the revolving credit agreement.

b. The subordinated note payable to General Scanning matures in June 2003, bears
interest at prime (8.25% at September 30, 1998) and is payable in equal
quarterly installments of $281 commencing September 12, 2001.

c. The note payable for $2,000 was with a related party supplier of Vanguard,
with interest at prime. This note was repaid in June 1998.

10. EMPLOYEE BENEFIT PLANS

DEFINED BENEFIT PLAN -- The Company has a noncontributory pension plan for
employees who meet certain minimum eligibility requirements. The level of
retirement benefit is based on a formula which considers both employee
compensation and length of credited service.

Plan assets are invested in pooled bank investment accounts, and the fair
value of such assets is based on the quoted market prices of underlying
securities in such accounts. The Company funds pension plan costs based on
minimum and maximum funding criteria as determined by independent actuarial
consultants.

The components of net pension cost for the fiscal years ended September 30,
1998, 1997 and 1996 are summarized as follows:

1998 1997 1996
----- ----- ----
(IN THOUSANDS)

Service cost -- benefits earned during the
period...................................... $ 286 $ 272 $219
Interest on projected benefit obligations..... 164 135 97
Estimated return on plan assets............... (167) (117) (81)
Other -- amortizaiton of actuarial gains and
net transition asset........................ (12) (15) (23)
----- ----- ----
Net pension cost............................ $ 271 $ 275 $212
===== ===== ====

F-20
64
ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The funded status of the plan compared with the accrued expense included in
the Company's consolidated balance sheet at September 30, 1998 and 1997 is as
follows:

1998 1997
------ ------
(IN THOUSANDS)

Fair value of plan assets............................ $2,254 $1,664
------ ------
Actuarial present value of benefit obligation:
Accumulated benefit obligation including vested
benefits of $1,753 and $1,329 in 1998 and 1997
respectively.................................... 2,049 1,647
Effect of projected compensation increases......... 570 554
------ ------
Projected benefit obligation for services rendered
to date......................................... 2,619 2,201
------ ------
Projected benefit obligation in excess of plan
assets.......................................... (365) (537)
Unrecognized net loss.............................. 162 358
Remaining unrecognized net transition asset being
amortized over 11 years......................... -- (14)
Unrecognized prior service costs................... 14 23
------ ------
Accrued pension costs included in accrued
expenses................................... $ (189) $ (170)
====== ======

Significant assumptions used in determining net periodic pension cost and
related pension obligations are as follows:

1998 1997
---- ----

Discount rate............................................ 7.25% 7.50%
Rate of compenstation increase........................... 4.00% 4.00%
Expected long-term rate of return on assets.............. 8.25% 8.25%

DEFINED CONTRIBUTION PLANS (IN THOUSANDS) -- The Company has four defined
contribution plans (the "Plans") for all eligible employees, as defined by the
Plans. The Company made matching employer contributions at various percentages
in accordance with the respective plan documents. The Company incurred $747,
$604 and $338 for matching employer contributions to the Plans in 1998, 1997 and
1996, respectively.

F-21
65
ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

11. COMMITMENTS AND CONTINGENCIES

OPERATING LEASES -- The Company has entered into operating lease agreements
for equipment, and manufacturing and office facilities. The minimum
noncancelable scheduled rentals under these agreements are as follows (in
thousands):

FISCAL YEAR ENDING SEPTEMBER 30: FACILITIES EQUIPMENT TOTAL
- -------------------------------- ---------- --------- -------

1999................................... $ 2,813 $187 $ 3,000
2000................................... 2,696 111 2,807
2001................................... 1,767 32 1,799
2002................................... 1,375 -- 1,375
2003................................... 1,210 -- 1,210
Thereafter............................. 7,140 -- 7,140
------- ---- -------
Total.................................. $17,001 $330 $17,331
======= ==== =======

Rent expense for the fiscal years ended September 30, 1998, 1997 and 1996
was $3,305, $3,015 and $2,283, respectively.

On January 6, 1997, the lessor of SEP's manufacturing facility assigned the
lease to the former majority shareholder of SEP, in conjunction with the sale of
this facility to the former majority shareholder. In addition, the lease was
amended to include certain capital equipment owned by the former majority
shareholder. SEP began leasing this facility during fiscal 1996. The base annual
rental payable under the lease is $605. The lease expires in October 2011.

LITIGATION -- The Company, as plaintiff, was a party to an action initiated
by the Company in the United States District Court for the Eastern District of
New York against defendant Cybo Systems, Inc. ("Cybo"), entitled Robotic Vision
Systems, Inc. v. Cybo Systems, Inc. a/k/a Cybot Systems, Inc., alleging certain
contractual breaches by Cybo arising from the Company's sale to Cybo of the
Company's welding and cutting systems business. In October 1998, this action,
including all of Cybo's remaining counterclaims against the Company, was
dismissed with prejudice by mutual agreement of the Company and Cybo and without
any payment by either party to the other, following a partial summary judgment
ruling by the Court that had dismissed substantially all of Cybo's counterclaims
against the Company.

In June 1998, RVSI and General Scanning executed a settlement agreement of
RVSI's claims arising out of General Scanning's acquisition of View Engineering,
Inc. in August 1996, RVSI claimed that General Scanning used improperly obtained
information in connection with the acquisition. General Scanning denied all such
claims. Under the settlement agreement, General Scanning has agreed not to
compete for ten years in the inspection of interconnect leads of semiconductor
packages. Under the settlement, General Scanning licensed to RVSI its 2-D and
3-D vision technology solely and exclusively for RVSI's use in the
interconnection leads. In consideration for the technology license and
non-competition agreement, RVSI agreed to pay General Scanning $3.75 million, of
which $1.50 million represents 271,493 shares of the Company's common stock and
$2.25 million in a subordinated note payable with a maturity date of five years.

F-22
66
ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company, as plaintiff, was a party to two actions in the United States
District Court for the Central District of California against View Engineering,
Inc. ("View"), a wholly owned subsidiary of General Scanning, Inc. ("GSI"),
alleging infringement by View of a number of the Company's patents relating to
View's assembly and distribution of View's own 3-D machine vision products. In
June 1998, the Court, in the first of these actions, involving the coplanarity
inspection of ball grid array semiconductor package substrates, found
infringement by View and granted the Company's request for injunctive relief
against View. This ruling has been appealed by View to the United States Appeals
Court for the Federal Circuit. The second of these actions, involving the
"in-tray" inspection of semiconductor packages is presently expected to come to
trial in the spring of 1999.

The Company is also presently involved in other litigation matters in the
normal course of business. Based upon discussion with Company's legal counsel,
management does not expect that these matters will have a material adverse
impact on the Company's consolidated financial statements.

12. STOCKHOLDERS' EQUITY

WARRANTS OUTSTANDING -- As of September 30, 1998, there were warrants
outstanding to purchase approximately 376,000 shares of the Company's common
stock with exercise prices ranging between $2.57 and $25.00 per share.

STOCK OPTION PLANS -- The Company has several stock option plans which
provide for the granting of options to employees or directors at prices and
terms as determined by the Board of Directors' Stock Option Committee. Such
options vest over a period of three to five years. All options issued by the
Company to date have exercise prices which were equal to market value of the
Company's common stock at the date of grant.

Shares granted and canceled during fiscal 1998 include a stock option
re-pricing offered by the Company to existing stock option holders of
unexercised options of each of the Company's stock option plans, excluding
members of the Board of Directors and certain corporate officers. Options
granted prior to June 26, 1998 were eligible for replacement under the terms of
the stock option re-pricing. At their election, stock option holders could
surrender their unexercised stock options for a proportionately lower amount of
stock options, based on a formula, at an exercise price of $4.13 per share, the
fair value of the Company's common stock on June 26, 1998. A total of
approximately 2,169,000 options, with exercise prices ranging from $5.19 per
share to $19.50 per share, were canceled, and approximately 1,446,000 options
were reissued at an exercise price of $4.13 per share. Reissued stock options
vest 40% on the six-month anniversary of the replacement date and 60% on the
date specified in the original option grant. The expiration date of these
reissued options are as specified in the original option grant. The options were
priced in excess of market value on the measurement date and accordingly, no
compensation was recognized.

Shares granted and canceled during 1997 include a stock option re-pricing
offered by the Company to existing stock option holders of unexercised options
of each of the Company's stock option plans. All options that were granted prior
to July 9, 1997 were eligible for replacement. In their election, stock option
holders could surrender their

F-23
67
ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

unexercised stock options for a proportionately lower amount of stock options,
based upon a formula, at an exercise of $14.13, the fair value of the Company's
common stock on July 22, 1997. A total of approximately 1,196,000 options with
exercise prices ranging from $14.52 to $26.75 were canceled, and approximately
930,000 options were reissued at an exercise price of $14.13 per share. Reissued
options vest 20 percent on the six-month anniversary of the replacement date; 20
percent on the one-year anniversary of the replacement date; and 20 percent
annually thereafter until fully vested. The options expire on July 22, 2002. For
directors and officers of the Company, the options will not become exercisable
until the earlier of seven years from the replacement date or until the market
value of the Company's common stock reaches the exercise price of the originally
replaced option.

The following table sets forth summarized information concerning the
Company's stock options:

NUMBER OF EXERCISE
SHARES PRICE RANGE
--------- ------------
(IN THOUSANDS)

Options outstanding for shares of
common stock at October 1, 1995..... 1,841 $0.53-$38.72
Granted............................. 1,843 7.71- 26.75
Canceled or expired................. (225) 1.00- 22.50
Exercised........................... (498) 0.53- 17.43
------
Options outstanding for shares of
common stock at September 30,
1996................................ 2,961 0.53- 38.72
Granted............................. 2,660 7.71- 19.00
Canceled or expired................. (1,636) 0.81- 38.72
Exercised........................... (293) 0.53- 15.34
------
Options outstanding for shares of
common stock at September 30,
1997................................ 3,692 0.75- 34.42
Granted............................. 2,943 3.19- 16.94
Canceled or expired................. (2,926) 2.20- 34.42
Exercised........................... (138) 0.75- 10.00
------
Options outstanding for shares of
common stock at September 30,
1998................................ 3,571 1.00- 19.38
======
Shares reserved for issuance at
September 30, 1998.................. 1,607
======

F-24
68
ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Weighted average option exercise price information for the fiscal years
ended September 30, 1998, 1997 and 1996 was as follows:

1998 1997 1996
------ ------ ------

Outstanding at beginning of year............ $11.08 $12.14 $ 4.27
Granted during the year..................... 6.68 12.86 17.94
Exercised during the year................... 2.36 4.14 2.09
Canceled, terminated and expired............ 11.88 16.51 16.06
Exercisable at year end..................... 7.12 5.86 4.52

The Company applies Accounting Principles Board Opinion No. 25, "Accounting
For Stock Issued To Employees", and related interpretations in accounting for
its option plans. Accordingly, as all options have been granted at exercise
prices equal to fair market value on the date of grant, no compensation expense
has been recognized by the Company in connection with its stock-based
compensation plans. Had compensation cost for the Company's stock option plans
been determined based upon the fair value at the grant date for awards under
these plans consistent with the methodology prescribed under Statement of
Financial Accounting Standards No. 123, "Accounting For Stock-Based
Compensation", the Company's net income (loss) and earnings per share would have
been reduced (increased) by approximately $(5,961,000), $5,032,000 and
$2,420,000 or $(0.24), $0.21 and $0.11 per share in fiscal 1998, 1997 and 1996,
respectively. The weighted average fair value of the options granted during
fiscal 1998, 1997 and 1996 is estimated at $3.99, $7.44 and $9.76 on the date of
grant (using Black-Scholes option pricing model) with the following weighted
average assumptions for fiscal 1998, 1997 and 1996, respectively: volatility of
70%, 64% and 56%, risk-free interest rate of 4.30%, 5.83% and 5.81%, and an
expected life of five years in fiscal 1998, 1997 and 1996.

13. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

FOR THE FISCAL YEARS ENDED SEPTEMBER 30, 1998 AND 1997:
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

1998
------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- -------- --------

Revenues............................ $53,788 $47,727 $ 39,090 $ 28,402
Gross profit........................ 26,043 21,041 10,919 (2,001)
Net income (loss)................... 3,543 (5,672) (15,433) (22,943)
Net income (loss) per share:
Basic and diluted................. 0.14 (0.23) (0.63) (0.92)

F-25
69
ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

1997
------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- -------- --------

Revenues............................ $38,734 $35,755 $ 41,789 $ 53,064
Gross profit........................ 17,357 15,192 19,681 23,265
Net income (loss)................... (294) (767) (762) 2,471
Net income (loss) per share:
Basic and diluted................. (0.01) (0.03) (0.03) 0.1

During fiscal 1998, the Company took inventory provisions of $4,500 in the
third quarter and $12,062 in the fourth quarter, which reduced gross profit. The
Company also had non-recurring charges of $3,184 in the second quarter, $2,420
in the third quarter and $1,011 in the fourth quarter of fiscal 1998.

14. MAJOR CUSTOMERS AND CREDIT CONCENTRATIONS

During fiscal 1998, 1997 and 1996, revenues from a single customer
represented 20%, 23% and 13% of total revenues, respectively. No other customer
accounted for more than 10% of total revenues for fiscal 1998, 1997 and 1996.

15. GEOGRAPHIC OPERATIONS

For the purposes of segment reporting, management considers the Company to
operate in one industry, the machine vision industry. Operations in this
business segment by geographic area are summarized as follows (in thousands):

UNITED
FISCAL YEAR ENDED SEPTEMBER 30, 1998 STATES EUROPE ELIMINATIONS CONSOLIDATED
- ------------------------------------ -------- ------- ------------ ------------

Revenues from unaffiliated
customers........................ $154,451 $14,556 -- $169,007
Transfers between geographic
areas............................ 4,852 -- $(4,852) --
-------- ------- ------- --------
Total revenues..................... $159,303 $14,556 $(4,852) $169,007
======== ======= ======= ========
Income (loss) before income tax
provision (benefit).............. $(36,529) $(3,747) $ (229) $(40,505)
======== ======= ======= ========
Identifiable assets................ $123,312 $ 7,979 $(9,720) $121,571
======== ======= ======= ========

F-26
70
ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

UNITED
FISCAL YEAR ENDED SEPTEMBER 30, 1997 STATES EUROPE ELIMINATIONS CONSOLIDATED
- ------------------------------------ -------- ------- ------------ ------------

Revenues from unaffiliated
customers........................ $152,530 $16,812 $ -- $169,342
Transfers between geographic
areas............................ 4,611 -- (4,611) --
-------- ------- ------- --------
Total revenues..................... $157,141 $16,812 $(4,611) $169,342
======== ======= ======= ========
Income (loss) before income tax
provision........................ $ 2,120 $ (721) $ (6) $ 1,393
======== ======= ======= ========
Identifiable assets on September 30,
1997............................. $136,448 $ 8,451 $(4,976) $139,923
======== ======= ======= ========

UNITED
FISCAL YEAR ENDED SEPTEMBER 30, 1996 STATES EUROPE ELIMINATIONS CONSOLIDATED
- ------------------------------------ -------- ------- ------------ ------------

Revenues from unaffiliated
customers........................ $137,749 $16,226 $ -- $153,975
Transfers between geographic
areas............................ 4,128 240 (4,368) --
-------- ------- ------- --------
Total revenues..................... $141,877 $16,466 $(4,368) $153,975
======== ======= ======= ========
Income (loss) before income tax
provision........................ $ (187) $ (201) $ 69 $ (319)
======== ======= ======= ========
Identifiable assets on September 30,
1996............................. $108,529 $ 7,085 $(8,143) $107,471
======== ======= ======= ========

Total revenues to customers outside the U.S. were $108,711, $115,854 and
$97,483 for the fiscal years ended September 30, 1998, 1997 and 1996,
respectively.

Export sales from the Company's United States operations to unaffiliated
customers, which are generally denominated in U.S. dollars, for the fiscal years
ended September 30, 1998, 1997 and 1996 were as follows:

1998 1997 1996
------- ------- -------

Europe................................... $ 7,501 $16,413 $ 9,160
Asia/Pacific Rim......................... 84,606 80,714 70,924
Other.................................... 2,048 1,915 1,173
------- ------- -------
Total.................................... $94,155 $99,042 $81,257
======= ======= =======

F-27
71
ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

16. EARNINGS PER SHARE

The calculations for earnings per share for the fiscal years ended
September 30, 1998, 1997 and 1996 are as follows (in thousands, except per share
amounts):

1998 1997 1996
-------- ------- -------

Net income (loss)....................... $(40,505) $ 648 $ 835
======== ======= =======
Weighted average number of common
shares -- basic....................... 24,613 23,718 22,092
Assumed number of shares issued from
common share equivalents.............. -- 249 1,293
-------- ------- -------
Weighted average number of common and
common equivalent shares -- diluted... 24,613 23,967 23,385
======== ======= =======
Net income (loss) per share -- basic.... $ (1.65) $ 0.03 $ 0.04
======== ======= =======
Net income (loss) per share --diluted... $ (1.65) $ 0.03 $ 0.04
======== ======= =======

17. EQUITY FINANCING -- SUBSEQUENT EVENT (UNAUDITED)

In February 1999, the Company completed an equity-based financing with a
group of institutional investors. Net proceeds from the financing were $10.0
million. The financing was in the form of prepaid and incentive common stock
purchase warrants. Proceeds from the financing are to be used for working
capital requirements.

F-28
72

SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(IN THOUSANDS)

COLUMN C
-----------
COLUMN A COLUMN B ADDITION COLUMN E
---------- ---------- CHARGED TO COLUMN D ---------
BALANCE AT CHARGED TO OTHER ------------- BALANCE
BEGINNING COST AND ACCOUNTS -- DEDUCTIONS -- AT END OF
DESCRIPTIONS OF PERIOD EXPENSES DESCRIBE DESCRIBE PERIOD
- ------------ ---------- ---------- ----------- ------------- ---------

Year Ended September 30,
1998:
Allowance for doubtful
accounts............. $2,716 $ 329 $-- $2,045(2) $ 1,000
====== ======= === ====== =======
Reserve for excess and
obsolete inventory... $3,836 $16,562 $-- $5,657(2) $14,741
====== ======= === ====== =======
Year Ended September 30,
1997:
Allowance for doubtful
accounts............. $1,400 $ 1,924 $-- $ 608(2) $ 2,716
------ ------- --- ------ -------
Reserve for excess and
obsolete inventory... $3,960 $ 1,435 $-- $1,559(2) $ 3,836
------ ------- --- ------ -------
Year Ended September 30,
1996:
Allowance for doubtful
accounts............. $ 544 $ 957 $ 6(1) $ 107(2) $ 1,400
------ ------- --- ------ -------
Reserve for excess and
obsolete inventory... $1,057 $ 3,052 $-- $ 149(2) $ 3,960
------ ------- --- ------ -------

- -------------------------

(1) Recoveries of accounts written off.

(2) Amounts written off.

F-29
73

ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET
(UNAUDITED)

JUNE 30, SEPTEMBER 30,
1999 1998
--------- -------------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)

Assets:
Current assets:
Cash and cash equivalents........................ $ 3,475 $ 2,421
Accounts receivable, net......................... 29,796 32,367
Inventories...................................... 31,189 36,213
Other current assets............................. 1,562 1,226
-------- --------
Total current assets..................... 66,022 72,227
Plant and equipment, net......................... 12,974 17,591
Deferred income taxes............................ 8,820 8,820
Goodwill......................................... 5,410 5,847
Software development costs, net.................. 13,726 11,812
Other assets..................................... 5,198 5,274
-------- --------
$112,150 $121,571
======== ========
Liabilities, prepaid warrants and stockholders'
equity
Current liabilities:
Notes payable and current portion of long-term
debt.......................................... $ 35,648 $ 38,038
Accounts payable................................. 18,814 21,388
Accrued expenses................................. 14,973 22,289
-------- --------
Total current liabilities................ 69,435 81,715
Long-term debt................................... 2,932 3,059
-------- --------
Total liabilities........................ 72,367 84,774
Prepaid warrants................................. 8,913 --
Stockholders' equity:
Common stock, authorized 75,000 shares at June
30, 1999 and authorized 50,000 shares at
September 30, 1998, $0.01 par value; issued
and outstanding 26,249 at June 30, 1999 and
24,870 at September 30, 1998................ 262 249
Additional paid-in capital.................... 172,466 168,493
Accumulated deficit........................... (141,584) (131,962)
Cumulative translation adjustment............. (274) 17
-------- --------
Stockholders' equity............................... 30,870 36,797
-------- --------
$112,150 $121,571
======== ========

See Notes to Consolidated Financial Statements

F-30
74

ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET
(UNAUDITED)

THREE MONTHS ENDED NINE MONTHS ENDED
------------------- -------------------
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1999 1998 1999 1998
-------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

Revenues................................. $31,260 $ 39,090 $ 87,959 $140,605
Cost of revenues......................... 17,017 28,171 49,284 82,602
------- -------- -------- --------
Gross profit........................... 14,243 10,919 38,675 58,003
Research and development expenses........ 4,804 7,508 15,276 21,527
Selling, general and administrative
expenses............................... 11,235 15,662 33,105 46,213
Merger expenses.......................... -- -- -- 623
Severance and other charges.............. 255 2,420 255 5,604
------- -------- -------- --------
Loss from operations................... (2,051) (14,671) (9,961) (15,964)
Interest expense, net.................... 1,047 762 2,569 1,490
Loss (gain) on sale of assets............ 63 -- (2,985) --
------- -------- -------- --------
Loss before provision for income
taxes............................... (3,161) (15,433) (9,545) (17,454)
Provision for income taxes............... -- -- -- 108
------- -------- -------- --------
Net loss............................... (3,161) (15,433) (9,545) (17,562)
Premium on prepaid warrant............... 193 270
------- -------- -------- --------
Net loss attributable to common
stockholders........................ $(3,354) $(15,433) $ (9,815) $(17,562)
======= ======== ======== ========
Net loss per share:
Basic.................................. $ (0.13) $ (0.63) $ (0.39) $ (0.72)
Diluted................................ $ (0.13) $ (0.63) $ (0.39) $ (0.72)
Weighted average shares:
Basic.................................. 25,837 24,609 25,197 24,534
Diluted................................ 25,837 24,609 25,197 24,534

See Notes to Consolidated Financial Statements

F-31
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ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

NINE MONTHS ENDED
JUNE 30,
---------------------
1999 1998
------- --------
(IN THOUSANDS)

OPERATING ACTIVITIES:
Net loss............................................... $(9,815) $(17,562)
Adjustments to reconcile net income to net cash from
operating activities:
Gain on sale of Assets............................... (2,985) --
Depreciation and amortization........................ 8,003 5,542
Other................................................ -- (14)
Changes in assets and liabilities:
Accounts receivable............................... 2,571 9,030
Inventories....................................... 4,576 (13,488)
Other current assets.............................. (336) (290)
Other assets...................................... (48) (1,398)
Accounts payable.................................. (2,574) 4,786
Accrued expenses.................................. (7,473) 439
Other long-term liabilities.......................... -- (831)
------- --------
Net cash used in operating activities.................. (8,081) (13,786)
------- --------
INVESTING ACTIVITIES:
Additions to plant and equipment....................... (1,511) (6,707)
Additions to software development costs................ (4,096) (5,599)
Proceeds from sale of assets........................... 4,759 --
------- --------
Net cash used in investing activities.................. (848) (12,306)
------- --------
FINANCING ACTIVITIES:
Exercise of stock options and warrants................. 20 309
Sale of common stock and warrants, net................. 12,518 --
Borrowings (repayments) of bank debt................... (2,358) 20,178
Repayments of long-term debt........................... (220) (1,070)
Proceeds from long-term borrowings..................... -- 259
------- --------
Net cash provided by financing activities.............. 9,960 19,676
------- --------
Effect of exchange rate changes on cash................ 23 --
------- --------
Net increase (decrease) in cash and cash equivalents... 1,054 (6,416)
Beginning balance -- cash and cash equivalents......... 2,421 8,811
------- --------
Ending balance -- cash and cash equivalents............ $ 3,475 $ 2,395
======= ========
SUPPLEMENTAL INFORMATION:
Interest paid.......................................... $ 1,859 $ 1,608)
Taxes paid............................................. -- 240

See Notes to Consolidated Financial Statements

F-32
76

ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

1. CONSOLIDATED FINANCIAL STATEMENTS

The Consolidated Balance Sheet of Robotic Vision Systems, Inc. and
Subsidiaries (the "Company") as of June 30, 1999, the Consolidated Statements of
Operations for the three month and nine month periods ended June 30, 1999 and
1998 and the Consolidated Statements of Cash Flows for the nine month periods
ended June 30, 1999 and 1998 have been prepared by the Company, without audit.
In the opinion of management, all adjustments (which include only normal
recurring adjustments) necessary to present fairly the financial condition,
results of operations and cash flows at June 30, 1999 and for all periods
presented have been made.

These consolidated financial statements should be read in conjunction with
the consolidated financial statements and notes thereto included in the
Company's Form 10-K and Form 10-K/A for the year ended September 30, 1998. The
results of operations for the period ended June 30, 1999 are not necessarily
indicative of the operating results for the full year.

2. INVENTORIES

Inventories at June 30, 1999 and September 30, 1998 consisted of the
following;

JUNE 30, 1999 SEPTEMBER 30, 1998
-------------- ------------------
(IN THOUSANDS)

Raw Materials................. $16,347 $17,124
Work-in-Process............... 6,277 10,429
Finished Goods................ 8,565 8,660
------- -------
Total............... $31,189 $36,213
======= =======

3. NOTES PAYABLE:

The Company has a revolving credit agreement with three domestic banks
which is collateralized by substantially all of the domestic tangible and
intangible assets of the Company. The agreement has a term which expires in
March 2000 and borrowings under the agreement currently bear interest at the
prime rate plus two percent. At June 30, 1999, the Company had borrowings of
$35,325,500 outstanding, which reflect the maximum commitment under the
agreement. During the third quarter of fiscal 1999, the Company amended the
credit agreement with its banks to waive compliance with certain financial
covenants through March 31, 1999 and establish new financial covenants for the
balance of the term of the agreement. The amended agreement contains certain
financial covenants, including minimum levels of profitability, liquidity and
net worth and maximum capital expenditures. The Company is in compliance with
the new covenants. In conjunction with the amendment to the credit agreement,
the Company issued warrants to its lending banks totaling 750,000 shares, at an
exercise price of $4.02 per share, of which 250,000 shares are immediately
exercisable. All, or a portion, of the remaining 500,000 shares are only
exercisable if the lending banks extend the credit agreement beyond the original
maturity date for a pre-determined period. Using a Black-Scholes valuation model
the Company valued the warrants at approximately $600,000 which will be charged
to income pro-rata

F-33
77
ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

over the term of the credit agreement with respect to the 250,000 shares
immediately exercisable and over the extension, if any, with respect to the
remaining 500,000 shares.

4. SALE OF PRODUCT LINE

In December 1998, the Company sold its Aircraft Safety product line
("Aircraft Safety") to a subsidiary of B.F. Goodrich ("Goodrich") for
$4,500,000, consisting of $4,050,000 in cash paid on closing and $450,000
payable upon the resolution of certain matters. The Company no longer considered
this technology a key component of its product portfolio or future strategic
direction. The Company sold certain inventory, equipment and intellectual
property in the transaction.

As of June 30, 1999, a contingency of $75,000 related to the novation of a
certain government contract had not been completed. Any additional gain will be
recognized upon resolution of this contingency.

5. NET INCOME (LOSS) PER SHARE

Basic net income (loss) per share is computed using the weighted average
number of shares outstanding during each period. Diluted net income per share
reflects the effect of the Company's outstanding stock options and warrants
(using the treasury stock method), except where such options would be
anti-dilutive.

For the three months and nine months ended June 30, 1999 and 1998, any such
potential common shares related to the Company's outstanding stock options and
warrants were anti-dilutive due to the net loss in the periods.

At June 30, 1999, the Company had approximately 3,775,000 shares of
unexercised stock options, 2,610,000 shares of unexercised warrants as well as
$11,000,000 in stated value of prepaid warrants for an indeterminate number of
shares.

6. COMPREHENSIVE INCOME (LOSS)

Effective October 1, 1998, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income".
Currently, in addition to net income or loss, the only item that the Company
currently records as other comprehensive income or loss is the change in the
cumulative translation adjustment resulting from the changes in exchange rates
and the effect of those changes upon translation of the financial statements of
the Company's foreign operations. For the three months ended June 30, 1999 and
1998, the components of comprehensive income (loss) included net loss of
$(3,161,000) and $(15,433,000), respectively, foreign currency translation
adjustment of $(291,000) and $25,000, respectively, for total comprehensive loss
of $(3,452,000) and $(15,408,000), respectively. For the nine months ended June
30, 1999 and 1998, the components of comprehensive income (loss) included net
loss of $(9,545,000) and $(17,562,000), respectively, foreign currency
translation adjustment of $(291,000) and $14,000, respectively, for total
comprehensive loss of $(9,836,000) and $(17,548,000), respectively.

F-34
78
ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

7. PREPAID AND INCENTIVE WARRANTS

On February 23, 1999, the Company completed a private placement of its
equity securities consisting of 5-year prepaid common stock purchase warrants
("prepaid warrants") with a stated value of $11,000,000 and 5-year incentive
common stock purchase warrants ("incentive warrants") to purchase 592,307 shares
of the Company's common stock upon payment of an exercise price of $4.02 per
share. These securities were sold to four institutional investors. At the
closing, the Company received gross proceeds of $11,000,000 from the issuance of
the prepaid warrants and incentive warrants, and net proceeds of $9,763,000
after placement agent fees and other expenses of the transaction. The Company
also issued to the placement agent 5-year incentive warrants to purchase 629,915
shares of common stock at an exercise price of $4.02 per share. The market price
of the Company's common stock on the placement closing date was $3.03 per share.
As of June 30, 1999, there were issued and outstanding $11,000,000 in stated
value of prepaid warrants, plus accrued premium of $270,000, and incentive
warrants to purchase a total of 1,222,222 shares of common stock. Proceeds from
the transaction were used to meet working capital requirements.

Each prepaid warrant is exercisable at the lower of $4.02 per share or 95%
of the average of the three lowest closing bid prices of the Company's common
stock during the 20-day trading period ending on the date of notice of exercise.
The prepaid warrants bear an annual premium of 7% per annum, payable in cash or,
at the Company's option, in shares of the Company's common stock, and are
initially exercisable, to the extent of 25% of the total number of shares
issuable, commencing on the 180th day (August 19, 1999) following their
issuance, increasing by increments of 25% every 90 days thereafter so that after
the passage of 450 days following the date of original issuance, the prepaid
warrants will have become fully exercisable. The incentive warrants are
exercisable at any time during their 5-year term.

The holders of the prepaid warrants can require that the Company redeem the
prepaid warrants in cash in the event of default by the Company under the
warrant agreement. An event of default as defined under the warrant agreement
includes failure to keep the Company's stock listed on a major exchange, failure
to file registration statements and to have such registration statements
declared effective, failure to make the shares underlying the warrants available
for exercise, merger into another entity where the Company is not the surviving
entity, bankruptcy proceedings, and failure to follow other material provisions
of the agreement.

In the event of a default the Company may be required to pay the greater of
105% of the stated value of the prepaid warrants inclusive of accrued but unpaid
premium or an amount based on the highest closing bid price of the Company's
common stock during the default period.

The prepaid warrants are subject to call at the Company's option if both,
during the 20-day trading day period immediately preceding the date of the
Company's notice of redemption the average closing bid price, and on the date of
the Company's notice of redemption the closing bid price, of the Company's
common stock is less than $4.02 per share, subject to anti-dilution adjustment,
at a cash price equal to 120% of the exercise amount of the prepaid warrants,
inclusive of earned premium, called for redemption. Such call right may be
exercised by the Company up to four times during the term of the

F-35
79
ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

prepaid warrants. The prepaid warrants are also subject to redemption by the
Company, at the Company's option, if their exercise price falls below $2.50 per
share. The prepaid warrants have been recorded outside of stockholder's equity
because the warrant holders can require the Company to redeem the prepaid
warrants under certain circumstances outside the Company's control.

The incentive warrants have been included in stockholders' equity in the
amount of $1,120,000, which reflects their estimated fair value. The prepaid
warrants have been recorded at $8,643,000, which reflects the amount of the net
proceeds received for the issuance of the prepaid warrants and incentive
warrants, less the value assigned to the incentive warrants. The premium of
$193,000 and $270,000 for the three and nine months ended June 30, 1999, on the
prepaid warrant is included in the net loss attributable to all common
stockholders. Under accounting literature in effect at the date of issue of the
prepaid warrants, the exercise terms of the prepaid warrants were not considered
to be a beneficial conversion feature.

Had the accounting requirements of EITF 98-5, "Accounting for Convertible
Securities with Beneficial Conversion Features or Contingently Adjustable
Conversion Ratios" ("EITF 98-5"), which is effective for instruments issued
after May 20, 1999, been in effect at the time of issuance of the prepaid
warrants, the exercise terms of the prepaid warrants would have been considered
a beneficial conversion feature and valued at approximately $1,120,000. This
amount would have been recorded as a discount to the amount recorded as prepaid
warrants and amortized over the period to initial exerciseability of the prepaid
warrants resulting in an increase of approximately $363,000 and $506,000 for the
three and nine months ended June 30, 1999 in net loss attributable to common
shareholders.

8. PRIVATE PLACEMENT SALE OF COMMON STOCK AND INCENTIVE WARRANTS

In April 1999, the Company sold 1,309,850 shares of its common stock at
$2.25 per share, in a private placement with a U.S. corporation. In conjunction
with the sale of common stock, the Company issued 5-year incentive warrants for
327,462 shares of the Company's common stock at an exercise price of $4.02 per
share, subject to anti-dilution adjustments. The incentive warrants are
exercisable, beginning 18 months after closing, at any time during their 5-year
term. Net proceeds were approximately $2,900,000, after expenses. Proceeds from
the sale of common stock was used to meet working capital requirements.

9. PRIVATE PLACEMENT SALE OF COMMON STOCK AND WARRANTS -- SUBSEQUENT EVENT

In July 1999, the Company sold 1,063,593 shares of its common stock for
proceeds of $3,244,000 and warrants to purchase 3,090,909 shares of the
Company's common stock at an exercise price of $4.02 per share for proceeds of
$4,250,000, in a private placement. Net proceeds were approximately $6,700,000,
after expenses. As a consequence of the sale of the Company's common stock, the
exercise price for the prepaid and pursuant to antidilutive provisions incentive
warrants (see Notes 3, 7 and 8) have been reduced to $3.96 per share. Proceeds
from the sale of common stock and warrants will be used to meet working capital
requirements.

F-36
80

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The estimated expenses in connection with the issuance and distribution of
the securities being registered, all of which will be paid by the Registrant,
are as follows:

SEC Registration Fee....................................... $ 5,683.66
Accounting Fees and Expenses............................... 7,500.00
Legal Fees and Expenses.................................... 15,000.00
Blue Sky Fees and Expenses................................. 1,000.00
Miscellaneous Expenses..................................... 10,816.34
----------
Total............................................ $40,000.00
==========

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Except as hereinafter set forth, there is no statute, charter provision,
by-law, contract or other arrangement under which any controlling person,
director or officer of Registrant is insured or indemnified in any manner
against liability which he may incur in his capacity as such.

Article SIXTH of the Restated Certificate of Incorporation of the
Registrant provides that registrant shall, to the full extent permitted by
Section 145 of the Delaware General Corporation Law, as amended, from time to
time ("DGCL"), indemnify all persons whom it may indemnify pursuant thereto.

Section 145 of the DGCL grants the registrant the power to indemnify
existing and former directors, officers, employees and agents of the Registrant
who are sued or threatened to be sued because they are or were directors,
officers, employees and agents of the Registrant.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

On February 23, 1999, the Registrant completed a private sale of units of
its securities consisting of $11,000,000 in stated amount of prepaid common
stock purchase warrants exercisable at varying prices, and incentive common
stock purchase warrants to purchase an additional 592,307 shares of common stock
exercisable at $4.02 per share, to four accredited investors. Incentive common
stock purchase warrants to purchase an additional 629,915 shares of common stock
were issued to The Zanett Securities Corporation, the placement agent in the
offering. The placement agent also received cash compensation aggregating
$979,000. A non-affiliated person who facilitated this transaction received
25,000 shares of the Registrant's common stock, as well as incentive common
stock purchase warrants to purchase an additional 25,000 shares of the
Registrant's common stock. The terms of these warrants were substantially
identical to those afforded the placement agent.

On April 26, 1999, the Registrant completed a private sale of 1,309,850
shares of its common stock to a single corporate investor at a price of $2.25
per share, or an aggregate of $2,947,163.

II-1
81

On April 27, 1999, the Registrant issued an aggregate of 5,602 shares of
its common stock to its non-employee directors in payment of accrued but unpaid
directors' fees.

On June 9, 1999, the Registrant issued 2,572 shares of its common stock in
partial payment of outstanding professional fees.

On July 23, 1999, the Registrant completed a private sale to 18 accredited
investors, certain of which were also participants in the Registrant's February
23, 1999 financing, of (i) five-year common stock purchase warrants at a price
of $1.375 per warrant and (ii) 1,063,593 shares of common stock at a price of
$3.05 per share, for aggregate proceeds to the Registrant of approximately $7.5
million. The warrants entitle the holders to acquire up to 3,090,907 shares of
the Registrant's common stock at an exercise price of $4.02 per share. The
Registrant expects to derive net proceeds of $6.7 million from this transaction.
The exercise price of the warrants is subject to possible downward adjustment on
one occasion, as follows: if on January 14, 2000 the average of the closing bid
prices of the Registrant's common stock for the 30 trading days prior to that
date shall have been less than $4.02, then the exercise price shall be reduced
to an amount equal to such average. The warrants contain provisions to protect
the respective holders against dilution, including any future sales of the
Registrant's equity securities at below then prevailing market prices (subject
to enumerated exceptions). The Zanett Securities Corporation acted as placement
agent and received placement fees and a non-accountable expense allowance
totaling 7.9% of the gross proceeds of the offering, and five-year warrants to
acquire 150,000 shares of the Registrant's common stock at an exercise price of
$5.00 per share.

Each of these transactions were exempt from registration under the
Securities Act of 1933 by reason of the provisions of Section 4(2) thereof.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) Exhibits

2.1 Agreement and Plan of Merger and Reorganization dated as of
October 20, 1997 by and among Registrant, Vanguard
Automation, Inc. and RVSI Southwest Acquisition Corp.(1)
3.1 Amended and Restated Certificate of Incorporation of
Registrant(2)
3.2 Amendments to Amended and Restated Certificate of
Incorporation of Registrant(3)
3.3 Bylaws, as amended to date, of Registrant(4)
4.1 Rights Agreement dated as of May 14, 1998 between Registrant
and American Stock Transfer & Trust Company(4)
4.2 Form of Prepaid Warrant(5)
4.3 Form of Common Stock Purchase Warrant(8)
5 Opinion of Cooperman Levitt Winikoff Lester & Newman, P.C.
10.1 Credit Agreement, dated as of March 18, 1998, by and among
Registrant, the Lenders Party thereto and Bank of New York,
as Administrative Agent(6)
10.2 Amendment No. 1 to Credit Agreement and Forbearance, dated
June 15, 1998, by and among Registrant, the Lenders Party
Thereto and Bank of New York, as Administrative Agent(3)

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82

10.3 Amendment No. 2 to Credit Agreement and Forbearance, dated
June 26, 1998, by and among Registrant, the Lenders Party
Thereto and Bank of New York, as Administrative Agent(3)
10.4 Amendment No. 3 to Credit Agreement and Forbearance, dated
December 4, 1998, by and among Registrant, the Lenders Party
Thereto and Bank of New York, as Administrative Agent(7)
10.5 Amendment No. 4 to Credit Agreement and Forbearance, dated
January 29, 1999, by and among Registrant, the Lenders Party
Thereto and Bank of New York, as Administrative Agent(3)
10.6 Amendment No. 5 to Credit Agreement and Forbearance, dated
March 16, 1999, by and among Registrant, the Lenders Party
Thereto and Bank of New York, as Administrative Agent(3)
10.7 Amendment No. 6 to Credit Agreement and Forebearance dated
April 22, 1999, by and among Registrant, the Lenders Party
Thereto and Bank of New York, as Administrative Agent(3)
10.8 Asset Purchase Agreement, dated November 16, 1998, between
Registrant and Rosemount Aerospace, Inc.(6)
10.9 License Agreement dated December 4, 1998 between Registrant
and Rosemount Aerospace, Inc.(6)
10.10 License Agreement dated December 4, 1998 between the Company
and Rosemount Aerospace, Inc.(6)
10.11 Securities Purchase Agreement dated as of February 18, 1999
among Registrant and the purchasers parties thereto(5)
10.12 Registration Rights Agreement(5)
10.13 Securities Purchase Agreement dated as of July 19, 1999
among Registrant and the purchasers parties thereto(8)
10.14 Registration Rights Agreement(8)
21 Subsidiaries of Registrant(6)
23(a) Consent of Deloitte & Touche LLP
23(b) Consent of Cooperman Levitt Winikoff Lester & Newman, P.C.
(contained in their opinion included under Exhibit 5)
24 Power of Attorney (comprises a portion of the signature page
to this registration statement)

- -------------------------

(1) Filed as an exhibit to Registrant's Current Report on Form 8-K dated
December 18, 1997.

(2) Filed as an exhibit to Registrant's Registration Statement on Form S-4/A,
File No. 333-08633.

(3) Filed as an exhibit to Registrant's Registration Statement on Form S-1, File
No. 333-76927.

(4) Filed as an exhibit to Registrant's Current Report on Form 8-K dated May 20,
1998.

(5) Filed as an exhibit to Registrant's Current Report on Form 8-K dated
February 24, 1999.

(6) Filed as an exhibit to Registrant's Annual Report on Form 10-K for its
fiscal year ended September 30, 1998.

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83

(7) Filed as an exhibit to Registrant's Annual Report on Form 10-K/A for its
fiscal year ended September 30, 1998, filed on January 28, 1999.

(8) Filed as an exhibit to Registrant's Current Report on Form 8-K dated July
23, 1999.

(b) Financial Statement Schedules

See Index to Consolidated Financial Statements and Financial Statement
Schedule.

ITEM 17. UNDERTAKINGS

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.

The undersigned registrant hereby undertakes:

(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement;

(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;

(ii) to reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement;

(iii) to include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information set forth in the registration
statement;

provided, however, that paragraphs (1)(i) and (1)(ii) shall not apply if
the information required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed by the registrant
pursuant to Section 13 or Section 15(d) of the Exchange Act that are
incorporated by reference in the Registration Statement;

(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.

(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of this offering.

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84

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the Town of Canton, Commonwealth of
Massachusetts, on the 8th day of September, 1999.

ROBOTIC VISION SYSTEMS, INC.

By: /s/ PAT V. COSTA
------------------------------------
Pat V. Costa
Chairman, President and
Chief Executive Officer

POWER OF ATTORNEY

Each of the undersigned officers and directors of ROBOTIC VISION SYSTEMS,
INC. hereby constitutes and appoints each of PAT V. COSTA and FRANK D. EDWARDS
as true and lawful, attorney-in-fact and agent with full power of substitution
and resubstitution, for him in his name in any and all capacities, to sign any
and all amendments (including post-effective amendments) to this registration
statement and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission and to
prepare any and all exhibits thereto, and other documents in connection
therewith, granting unto said attorneys-in-fact and agents, full power and
authority to do and perform each and every act and thing requisite or necessary
to be done to enable ROBOTIC VISION SYSTEMS, INC. to comply with the provisions
of the Securities Act of 1933, as amended, and all requirements of the
Securities and Exchange Commission, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
------------------------

Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed by the following persons in the
capacities and on the dates indicated.

SIGNATURE TITLE DATE
--------- ----- ----

/s/ PAT V. COSTA Chairman, President and September 8, 1999
- --------------------------------------------------- Chief Executive Officer
Pat V. Costa (Principal Executive
Officer)

/s/ FRANK D. EDWARDS Chief Financial Officer and September 8, 1999
- --------------------------------------------------- Treasurer (Principal
Frank D. Edwards Financial and Accounting
Officer)

/s/ HOWARD STERN Director September 8, 1999
- ---------------------------------------------------
Howard Stern

/s/ FRANK DIPIETRO Director September 8, 1999
- ---------------------------------------------------
Frank DiPietro

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85

SIGNATURE TITLE DATE
--------- ----- ----

/s/ JAY M. HAFT Director September 8, 1999
- ---------------------------------------------------
Jay M. Haft

Director
- ---------------------------------------------------
Tomas Kohn

Director
- ---------------------------------------------------
Donald J. Kramer

Director
- ---------------------------------------------------
Mark J. Lerner

/s/ ROBERT H. WALKER Director September 8, 1999
- ---------------------------------------------------
Robert H. Walker

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