ROBOTIC VISION SYSTEMS INC, S-3/A, 2000-02-02

ROBOTIC VISION SYSTEMS INC
S-3/A, 2000-02-02
INDUSTRIAL INSTRUMENTS FOR MEASUREMENT, DISPLAY, AND CONTROL

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 2, 2000

FILE NO. 333-94971

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

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

AMENDMENT NO. 1

FORM S-3

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933
------------------------

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

<TABLE>
<S> <C>
DELAWARE 11-2400145
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
</TABLE>

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 TO:

<TABLE>
<S> <C>
IRA I. ROXLAND, ESQ. JAY L. BERNSTEIN, ESQ.
JOSEPH H. SCHMITT, ESQ. KATHLEEN L. WERNER, ESQ.
COOPERMAN LEVITT WINIKOFF LESTER & NEWMAN, P.C. CLIFFORD CHANCE ROGERS & WELLS LLP
800 THIRD AVENUE 200 PARK AVENUE
NEW YORK, NEW YORK 10022 NEW YORK, NEW YORK 10166
TEL: (212) 688-7000 TEL: (212) 878-8000
FAX: (212) 755-2839 FAX: (212) 878-8375
</TABLE>

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

APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: From time to time after the
effective date of this Registration Statement.

If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]

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, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [ ]

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, 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. [ ]

CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED UNIT(1) PRICE REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $0.01 par value........ 5,000,000 $13.38 $76,906,250 $20,303.25(2)
- ---------------------------------------------------------------------------------------------------------------------------------
Common Stock, $0.01 par value(3)..... 250,000 $11.75 $ 2,937,500 $775.50
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(a).

(2) Previously paid.

(3) Shares of common stock to be sold by a selling shareholder as set forth in
the prospectus.

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 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.

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- --------------------------------------------------------------------------------
<PAGE> 2

THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IS NOT
SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER
OR SALE IS NOT PERMITTED.

SUBJECT TO COMPLETION, DATED FEBRUARY 2, 2000

PROSPECTUS

[ROBOTIC VISION SYSTEMS, INC. LOGO]

5,250,000 SHARES

ROBOTIC VISION SYSTEMS, INC.
COMMON STOCK
------------------------

We are offering 5,000,000 shares of our common stock and a selling
shareholder is selling 250,000 shares. We will not receive any of the proceeds
from the sale of shares by the selling shareholder.

Our common stock is quoted on the Nasdaq National Market under the symbol
"ROBV." On January 28, 2000, the last reported sale price on the Nasdaq National
Market was $11 3/4 per share.

INVESTING IN OUR COMMON STOCK INVOLVES RISKS.

SEE "RISK FACTORS" BEGINNING ON PAGE 5.

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

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
PER SHARE TOTAL
- ----------------------------------------------------------------------------------
<S> <C> <C>
Public Offering Price....................................... $ $
Underwriting Discounts and Commissions...................... $ $
Proceeds to Us, Before Expenses............................. $ $
Proceeds to Selling Shareholder............................. $ $
- ----------------------------------------------------------------------------------
</TABLE>

The underwriters may also purchase up to an additional 750,000 shares from
us at the public offering price, less the underwriting discounts, within 30 days
from the date of this prospectus, to cover any over-allotments. The underwriters
expect to deliver the shares to purchasers on or about , 2000
------------------------
ING BARINGS

PRUDENTIAL VOLPE TECHNOLOGY
A UNIT OF PRUDENTIAL SECURITIES

MCDONALD INVESTMENTS INC.
, 2000
<PAGE> 3

[Artwork]
<PAGE> 4

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by reference to, and
should be read in conjunction with, the more detailed information contained or
incorporated by reference in this prospectus. Except as otherwise indicated, all
information in this prospectus assumes no exercise of the underwriters'
over-allotment option. The discussion of our business in this prospectus
includes the operations of our subsidiaries and the operations of any companies
we acquired, unless we tell you otherwise.

THE COMPANY

Robotic Vision Systems designs, manufactures and markets machine vision,
automatic identification and related products for the semiconductor capital
equipment, electronics, automotive, aerospace, pharmaceutical and other
industries. Founded in 1976, we use advanced technology including vision-enabled
process equipment, high performance optics, lighting and advanced hardware and
software to offer a full range of automation solutions. In 1991, we introduced
the first generation of our current principal product, the lead scanner, a
three-dimensional machine vision system which inspects the physical
characteristics of packaged semiconductors. We believe we currently have the
dominant share of lead scanners used by the semiconductor industry. More
recently, we have become a leader in designing and manufacturing products which
utilize machine vision technology to interpret one- and two-dimensional bar
codes.

We operate through two divisions -- the Semiconductor Equipment Group and
the Acuity CiMatrix Division.

- - The Semiconductor Equipment Group's primary business is the design,
manufacture and marketing of systems that inspect assembled chip packages,
transfer integrated circuits from one medium to another and attach solder
balls to ball grid array semiconductors. This group serves the semiconductor
capital equipment market.

- - The Acuity CiMatrix Division designs, manufactures and markets two primary
product lines:

-- vision systems used in the general purpose machine vision market for a
variety of industrial applications; and

-- one- and two-dimensional bar code reading systems and related products
used in the automatic identification and data collection market to track
the manufacture and distribution of industrial and consumer products.

We were pioneers in the development of machine vision and have utilized our
technology to enter the emerging market for two-dimensional bar code readers. We
developed the technology and own the patents to Data Matrix, a two-dimensional
bar code symbology which can be marked directly onto parts and components. We
placed the Data Matrix symbology into the public domain in order to encourage
the widespread adoption of this coding system and the sale of our
two-dimensional bar code readers. In addition, we design and manufacture
high-speed bar code scanning equipment for traditional one-dimensional reading
applications such as sorting devices commonly used in e-commerce infrastructure,
logistics, material handling and warehousing applications.
1
<PAGE> 5

Our goal is to grow by continuing to work with leaders in each of our
served markets, anticipating their needs and offering them the most advanced
products and technology. To accomplish this objective, we intend to:

- - Leverage our leading position in selected semiconductor capital equipment
market niches;

- - Further develop the two-dimensional bar code market as the inventor of Data
Matrix symbology; and

- - Capitalize upon the convergence of the machine vision and bar code industries.

By incorporating our expertise in machine vision with our innovations in
bar code technologies, we are uniquely positioned to offer integrated solutions
for a variety of automation needs.

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 and our website is located at
www.rvsi.com. The information on our website is not part of this prospectus.

RECENT DEVELOPMENTS

Our revenues were $47.1 million for the three months ended December 31,
1999, compared to $29.4 million for the three months ended December 31, 1998,
representing an increase of 60.1%. Net income attributable to common
stockholders was $1.1 million, or $0.04 per share, for the three months ended
December 31, 1999.

We define bookings during a fiscal period as incoming orders deliverable to
customers in the next twelve months less cancellations. Our bookings for the
three months ended December 31, 1999 were $55.9 million, representing an
increase of $8.3 million, or 17.4%, from $47.6 million for the quarter ended
September 30, 1999, and an increase of $24.4 million, or 77.3%, from $31.5
million for the quarter ended December 31, 1998.

On December 27, 1999, we reported that Pratt & Whitney, an engine
manufacturer, has adopted the Data Matrix two-dimensional symbology for on-parts
marking of its critical engine components and will use our MXi hand-held imager
to read those parts. Pratt & Whitney is a United Technologies Corporation
company.

On November 29, 1999, we announced that we received an order for our new
WS-1000 Wafer Inspection System. The WS-1000 is being used as a front-end
inspection system in the manufacturing of flip chips, integrated circuits used
in wireless communication products. The system has since been installed by a
major U.S. manufacturer of integrated circuits for computer and communications
products. We believe that our WS-1000 is the only product currently capable of
providing semiconductor companies the large number of inspections they desire at
volume manufacturing levels.

In December 1998, we introduced the MXi, a hand-held imager that resulted
from a joint development and marketing arrangement with Polaroid Corporation. In
November 1999, we acquired Polaroid's interest in the MXi, including all
relevant intellectual property rights, for a $2.0 million subordinated
convertible note. Polaroid, the selling shareholder, has elected to convert this
note and accrued interest into shares of our common stock, at $8.00 per share,
for sale in this offering. We will pay Polaroid a royalty based on net sales of
the MXi.

2
<PAGE> 6

THE OFFERING

Common stock offered by us.......... 5,000,000 shares

Common stock offered by selling
shareholder......................... 250,000 shares(1)

Common stock to be outstanding after
this offering....................... 32,688,304 shares(2)

Use of proceeds..................... The net proceeds to us will be used to
repay approximately $35.3 million of
remaining outstanding indebtedness
under our bank credit facility, to fund
product development and capital
expenditures and to provide working
capital.

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

(1) The number of shares offered by the selling shareholder is based upon the
number of shares represented by the conversion of Polaroid's $2.0 million
subordinated convertible note and accrued interest at an exercise price of
$8.00 per share, as of December 31, 1999. The actual number of shares
offered by the selling shareholder will be calculated as of the offering
date.

(2) Does not include, as of December 31, 1999, (a) 4,082,393 shares of common
stock issuable upon exercise of stock options outstanding with a weighted
average exercise price of $5.21 per share, (b) 1,739,431 shares of common
stock reserved for future issuance under our stock option plans, (c)
2,777,778 shares of common stock issuable upon exercise of outstanding
prepaid warrants for which we have already received proceeds based on an
average exercise price of $3.96 per share and (d) 5,820,055 shares of common
stock issuable upon exercise of outstanding warrants, with a weighted
average exercise price of $4.32 per share.

3
<PAGE> 7

SUMMARY CONSOLIDATED FINANCIAL DATA

<TABLE>
<CAPTION>
THREE MONTHS
ENDED
DECEMBER 31, FISCAL YEAR ENDED SEPTEMBER 30,
----------------- --------------------------------------------------------
1999 1998 1999 1998 1997 1996 1995
------- ------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.................................. $47,080 $29,405 $128,230 $169,007 $169,342 $153,975 $145,415
Income (loss) before income taxes(1)...... 1,353 (2,272) (9,258) (40,505) 1,393 (319) 12,092
Provision (benefit) for income taxes...... 27 -- -- -- 745 (1,154) (56)
Net income (loss)......................... 1,326 (2,272) (9,258) (40,505) 648 835 12,148
Premium on prepaid warrants............... 193 -- 463 -- -- -- --
Net income (loss) attributable to common
stockholders............................ $ 1,133 (2,272) $ (9,721) $(40,505) $ 648 $ 835 $ 12,148
Net income (loss) per share
Basic................................... $ 0.04 $ (0.09) $ (0.38) $ (1.65) $ 0.03 $ 0.04 $ 0.65
Diluted................................. $ 0.04 $ (0.09) $ (0.38) $ (1.65) $ 0.03 $ 0.04 $ 0.58
</TABLE>

<TABLE>
<CAPTION>
AT DECEMBER 31, 1999
-------------------------
AS
ACTUAL ADJUSTED(3)
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital............................................. $ 6,731 $ 61,550
Total assets................................................ 130,537 143,031
Long-term debt, including current portion................... 4,991 2,991
Notes payable............................................... 35,325 --
Total liabilities........................................... 81,708 37,383
Prepaid warrants............................................ 9,298 9,298
Stockholders' equity........................................ 39,531 96,350
</TABLE>

- ---------------
(1) Net of inventory provisions, merger expenses and severance and other charges
of $255,000, $23,800,000, $1,504,000, $5,713,000 and $1,305,000 in fiscal
years 1999, 1998, 1997, 1996 and 1995.

(2) Net of inventory provisions, merger expenses and severance and other charges
of $255,000, $13,073,000, $6,920,000 and $3,184,000 for the three months
ended June 30, 1999, September 30, 1998, June 30, 1998 and March 31, 1998.

(3) Adjusted to reflect the sale of the 5,000,000 shares of common stock offered
by us in this offering at an assumed public offering price of $11 3/4 per
share which was the last reported sales price of our common stock as of
January 28, 2000 and after deducting the underwriting discounts and
estimated offering expenses and giving effect to the application of the net
proceeds. See "Use of Proceeds" and "Capitalization."

4
<PAGE> 8

RISK FACTORS

Prospective investors should consider carefully the risk factors set forth
below as well as the other information contained or incorporated by reference in
this prospectus prior to making an investment in our common stock.

OUR PRINCIPAL MARKET IS THE HIGHLY CYCLICAL SEMICONDUCTOR INDUSTRY WHICH CAUSES
A CYCLICAL IMPACT ON OUR FINANCIAL RESULTS

We sell capital equipment to companies that design, manufacture, assemble
and test semiconductor devices. The semiconductor industry is highly cyclical,
causing in turn a cyclical impact on our financial results. Any significant
downturn in the markets for our customers' semiconductor devices or in general
economic conditions would likely result in a reduction in demand for our
products and would hurt our business.

Most recently, our revenue and operating results declined in fiscal years
1998 and 1999 as a result of a sudden and severe downturn in the semiconductor
industry precipitated by a recession in Asian countries. Downturns in the
semiconductor capital equipment industry have been characterized by diminished
product demand, excess production capacity and accelerated erosion of selling
prices. In the past, we have experienced delays in commitments, delays in
collecting accounts receivable and significant declines in demand for our
product during these downturns, and we cannot be certain that we will be able to
maintain or exceed our current level of sales. Additionally, as a capital
equipment provider, our revenues are driven by the spending patterns of our
customers who often delay expenditures or cancel orders in reaction to
variations in their businesses. Because a high proportion of our costs are
fixed, we are limited in our ability to reduce expenses quickly in response to
revenue short-falls. In a contraction, we may not be able to reduce our
significant fixed costs, such as continued investment in research and
development and capital equipment requirements.

During a downturn, we may experience delays in collecting receivables,
which may impose constraints on our working capital. In addition, a downturn in
industry demand for our products that we are unable to anticipate may place us
in a position of excessive inventories, which would further constrain cash flow.
By way of illustration, we were compelled to reduce our inventory carrying value
by approximately $16.6 million for the fiscal year ended September 30, 1998 as a
consequence of an industry downturn which unexpectedly began in March 1998.

OUR RETURN TO SUSTAINED PROFITABILITY CANNOT BE ASSURED

We incurred net losses of $9.7 million and $40.5 million for the fiscal
years ended September 30, 1999 and 1998, respectively, primarily attributable to
the worldwide downturn in demand for semiconductor capital equipment which began
in March 1998 and continued through the first half of calendar year 1999. While
we reported net income of $287,000 and $1.3 million on revenues of $40.3 million
and $47.1 million for the three month periods ended September 30 and December
31, 1999, respectively, our return to sustained profitable operations will
depend upon our ability to maintain these quarterly revenue levels or make
further reductions in our costs. We can give no assurance that we will return to
sustained profitability.

THE MARKET FOR SEMICONDUCTOR CAPITAL EQUIPMENT IS HIGHLY CONCENTRATED

The semiconductor industry is highly concentrated, and a small number of
semiconductor device manufacturers and contract assemblers account for a
substantial portion of purchases of semiconductor capital equipment. Sales to
our ten largest customers accounted for 33.3% of total revenues in fiscal year
1999 and 41.1% in fiscal year 1998. No single customer accounted for more than
10% of
5
<PAGE> 9

revenues in fiscal year 1999. However, Intel Corporation accounted for 20.0% of
our revenues in fiscal year 1998. A loss of or decrease in purchases by one of
these customers could materially and adversely affect our sales.

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

International sales, primarily to Asia and Western Europe, accounted for
approximately 56% and 64% of our revenues for the fiscal years ended September
30, 1999 and 1998, respectively. In particular, sales to Taiwan, Korea and other
Asian countries accounted for approximately 41% and 54% of our revenues for the
fiscal years ended September 30, 1999 and 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, 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 Philippines as currency
devaluations prevented these customers from acquiring U.S. dollars at favorable
exchange rates, thereby adversely affecting both our revenue levels and
profitability.

DEVELOPMENT OF OUR PRODUCTS REQUIRES SIGNIFICANT LEAD TIME AND WE MAY FAIL TO
CORRECTLY ANTICIPATE THE TECHNICAL NEEDS OF OUR MARKETS

We must anticipate industry trends and develop products in advance of the
commercialization of semiconductor capital equipment. We are required to make
capital investments to develop new products before they are commercially
accepted by our customers. In addition, if we are not successful in developing
enhancements or new generations of products, we may not be able to recover the
costs of these investments or may incur significant losses. If we are not able
to develop new products which meet the needs of our markets, our competitive
position in our industries may be diminished and our relationships with our
customers may be impaired.

INADEQUATE CASH FLOW AND RESTRICTIONS IN OUR BANKING ARRANGEMENTS MAY IMPEDE OUR
PRODUCTION AND PREVENT US FROM INVESTING SUFFICIENT FUNDS IN RESEARCH AND
DEVELOPMENT

The markets for our products are extremely competitive. Our near-term
competitive position is dependent upon our ability to satisfy orders received in
a timely manner. To do so, we need access to capital to rapidly increase our
production capabilities. Maintaining our long-term 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 production, research and product development expenditures.

WE WILL BE IN DEFAULT IF WE DO NOT REPAY OR REPLACE OUR BANKS BY MARCH 17, 2000

We owed approximately $35.3 million to our banks as of December 31, 1999.
This indebtedness is secured by substantially all of our assets. We periodically
requested waivers of financial covenants or amendments to the agreement with our
banks because we were not able to comply with the requirements of the agreement.
While our financing agreement has recently been amended to conform its financial
covenants to reflect our current operating plans and we are currently in
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 17, 2000, negotiate an extension of our bank credit
facility or obtain replacement financing. In the event that we do not obtain
alternative financing or if a default is declared by our banks, it is likely
that our

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<PAGE> 10

cash resources will be severely constrained. We intend to use the proceeds of
this offering to repay the remaining outstanding indebtedness under this credit
facility.

OUR SUCCESS IS DEPENDENT ON OUR ABILITY TO HIRE AND RETAIN QUALIFIED PERSONNEL

Our success depends in large part upon our ability to hire and retain
qualified personnel in technical and managerial positions. We have a limited
number of employment agreements with our technical and managerial personnel. The
market for employees with the combination of skills and attributes required to
carry out our needs is extremely competitive. Our inability to hire and retain
such personnel could adversely affect our growth and profitability.

THE LARGE NUMBER OF SHARES AVAILABLE FOR FUTURE SALE COULD ADVERSELY AFFECT THE
PRICE OF OUR COMMON STOCK

As of December 31, 1999, we had outstanding:

- 4,082,393 shares of common stock issuable upon exercise of stock options
with a weighted average exercise price of $5.21 per share; and

- Approximately 250,000 shares of common stock issuable upon the conversion
of a subordinated convertible note. This note will be converted into
common shares which will be sold in this offering by the selling
shareholder.

In addition, we had a total of 8.6 million warrants outstanding, of which
6.4 million were exercisable as of December 31, 1999, of which 2.2 million will
or may become exercisable by December 31, 2000. A table detailing these warrants
follows.

<TABLE>
<CAPTION>
EXERCISABLE WEIGHTED AVERAGE EXERCISE PRICE
---------------------------- -------------------------------
OUTSTANDING CURRENTLY BY DEC. 31, 2000 CURRENTLY BY DEC. 31, 2000
----------- --------- ---------------- --------- ----------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
- - Warrants Issued Prior to Fiscal 1999........ 254 254 0 $10.77 --
- - Incentive Warrants Issued in Fiscal 1999.... 1,247 1,247 0 $ 3.96 --
- - Prepaid Warrants Issued in Fiscal 1999...... 2,778 1,389 1,389 $ 3.96 $3.96
- - Other Warrants Issued in Fiscal 1999........ 4,319 3,492 827 $ 4.06 $3.96
----- ----- ----- ------ -----
Total....................................... 8,598 6,382 2,216
</TABLE>

Except for approximately 327,000 shares, all of the shares underlying these
warrants have been registered for resale.

The holders of certain of these warrants representing approximately 7.2
million shares of common stock have entered into a lock-up agreement with ING
Barings LLC, as representative of the underwriters, limiting sales by the
holders of shares issuable upon exercise of those warrants. The holders have
agreed that, for a 120-day period after the date of the execution of an
underwriting agreement with regard to this offering, they will not, without the
permission of ING Barings, sell more than 25% of the shares of common stock
issuable upon exercise of such warrants, except that this restriction on sale
will not apply on any trading day that immediately follows a period of five
consecutive trading days during which the daily closing price of such shares on
the Nasdaq National Market is either three dollars more per share or three
dollars less per share than the public offering price set forth on the cover
page of this prospectus. In addition, this lock-up agreement does not apply to
shares purchased in open market transactions and will not prohibit the holding
of shares in a margin account or the extension of existing swap or other
derivative transactions.

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<PAGE> 11

Future sales of any shares represented by outstanding options and warrants,
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 these shares could result in increased volatility in the price of our
common stock.

OUR STOCK PRICE IS VOLATILE

In the past twelve months, the closing price of our common stock has ranged
from a low of $1 15/16 to a high of $14 1/4. The price of our common stock has
been and likely will continue to be subject to wide fluctuations in response to
a number of events and factors, such as:

- quarterly variations in operating results;

- differences between our quarterly results of operations and securities
analysts' estimates;

- announcements of technological innovations, new products or strategic
alliances;

- the announcement of the results of existing or new litigation; and

- news reports relating to companies or trends in our markets.

SYSTEM FAILURES OR MISCALCULATIONS ATTRIBUTABLE TO THE YEAR 2000 ISSUE COULD
DISRUPT OUR FUTURE 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. Although we believe that we have adequately addressed the
Year 2000 issue, having experienced no failures or disruptions in our internal
operating systems or our products or in those of our third party vendors or
suppliers either on or after January 1, 2000, it is possible that future
failures or disruptions stemming from Year 2000 issues may yet result in our
inability to process transactions, send invoices, accept customer orders or
timely provide customers with products and services.

CAUTIONARY STATEMENT REGARDING
FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements including statements
regarding, among other items, business strategy, growth strategy and anticipated
trends in our business, which are made pursuant to the "safe harbor" provisions
of the Private Securities Litigation Reform Act of 1995. The words "believe,"
"expect" and "anticipate" and similar expressions identify forward-looking
statements, which speak only as of the date the statement is made. These
forward-looking statements are based largely on our expectations and are subject
to a number of risks and uncertainties, some of which cannot be predicted or
quantified and are beyond our control. Future events and actual results could
differ materially from those set forth in, contemplated by, or underlying the
forward-looking statements. Statements in this prospectus, including those set
forth in "Risk Factors," describe factors, among others, that could contribute
to or cause such differences. In light of these risks and uncertainties, there
can be no assurance that the forward-looking information contained in this
prospectus will in fact transpire or prove to be accurate.

8
<PAGE> 12

USE OF PROCEEDS

The net proceeds to us from the sale of our common stock are estimated to
be approximately $54.8 million, assuming a public offering price of $11 3/4 per
share, after deducting the underwriting discounts and estimated offering
expenses. We plan to use the net proceeds to repay approximately $35.3 million
of outstanding remaining indebtedness under our bank credit facility, to fund
product development and capital expenditures and to provide working capital.

As of December 31, 1999, $35.3 million was outstanding under our bank
credit facility. Borrowings thereunder currently bear interest at the prime rate
plus two percent. We are obligated to repay all borrowings under this facility
by March 17, 2000. You should read the discussion under "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources" for additional information about our bank credit facility.

PRICE RANGE OF COMMON STOCK

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:

<TABLE>
<CAPTION>
FISCAL QUARTER ENDED HIGH LOW
- -------------------- ---- ---
<S> <C> <C>
Through January 28, 2000................................... $14 1/4 $ 9 1/8
December 31, 1999.......................................... 9 7/8 3 9/13
September 30, 1999......................................... 5 3/4 3 5/16
June 30, 1999.............................................. 3 25/32 1 15/16
March 31, 1999............................................. 3 15/16 2 5/16
December 31, 1998.......................................... 4 9/16 2 1/8
September 30, 1998......................................... 5 1/8 2 9/16
June 30, 1998.............................................. 12 9/16 3 13/16
March 31, 1998............................................. 14 1/16 10
</TABLE>

As of December 31, 1999, there were approximately 3,400 holders of record
and approximately 30,000 beneficial owners of our common stock. The closing sale
price of our common stock on the Nasdaq National Market on January 28, 2000 was
$11 3/4 per share.

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
existing bank credit agreement currently 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.

9
<PAGE> 13

CAPITALIZATION

The following table sets forth our notes payable, long-term debt, prepaid
warrants and stockholders' equity at December 31, 1999 and as adjusted to
reflect the sale of the 5,000,000 shares of common stock offered by us in this
offering at an assumed public offering price of $11 3/4 per share which was the
last reported sales price of our common stock as of January 28, 2000, after
deducting the underwriting discounts and estimated offering expenses that we
will pay and giving effect to our receipt and application of the net proceeds:

<TABLE>
<CAPTION>
AT DECEMBER 31, 1999
------------------------
ACTUAL AS ADJUSTED
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
Notes payable........................................... $ 35,325 $ --
========= =========
Long-term debt, including current portion............... $ 4,991 $ 2,991
========= =========
Prepaid warrants........................................ $ 9,298 $ 9,298
========= =========
Stockholders' equity:
Common stock, $0.01 par value; 75,000 shares
authorized; 27,354 shares issued and outstanding,
actual; shares issued and outstanding, as
adjusted(1)........................................ 274 327
Additional paid-in capital............................ 179,883 236,649
Accumulated deficit................................... (140,551) (140,551)
Accumulated other comprehensive income................ (75) (75)
--------- ---------
Total stockholders' equity......................... $ 39,531 $ 96,350
========= =========
Total capitalization.......................... $ 89,145 $ 108,639
========= =========
</TABLE>

- ---------------
(1) Excludes the following:

- 4,082,393 shares of common stock issuable upon exercise of stock options
outstanding as of December 31, 1999, with a weighted average exercise
price of $5.21 per share;

- 1,739,431 shares of common stock reserved for future issuance under our
stock option plans;

- 2,777,778 shares of common stock issuable upon exercise of outstanding
prepaid warrants for which we have already received proceeds based on an
exercise price of $3.96 per share;

- 5,820,055 shares of common stock issuable upon exercise of outstanding
warrants, with a weighted average exercise price of $4.32 per share; and

For a discussion of our benefit plans, see Note 9 to our Consolidated
Financial Statements.

10
<PAGE> 14

SELECTED CONSOLIDATED FINANCIAL INFORMATION

The following selected consolidated financial data should be read in
conjunction with our consolidated financial statements including the
accompanying notes and Management's Discussion and Analysis of Financial
Condition and Results of Operations. The data as of September 30, 1999 and 1998
and for each of the three years in the period ended September 30, 1999 have been
derived from our consolidated financial statements and accompanying notes. The
Statement of Operations Data for each of the two years in the period ended
September 30, 1996 and 1995 and the Balance Sheet Data at September 30, 1997,
1996 and 1995 have been derived from our audited financial statements which are
not contained in this prospectus. The data as of December 31, 1999 and 1998 and
for the three months ended December 31, 1999 and 1998 have been derived from our
unaudited consolidated financial statements and accompanying notes, which we
believe include all adjustments, consisting only of normal and recurring
adjustments, necessary for the fair presentation of the financial information.
Our results of operations for the three months ended December 31, 1999 and 1998
are not necessarily indicative of our results of operations for the entire year.

<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------- FISCAL YEAR ENDED SEPTEMBER 30,
DEC. 31, DEC. 31, --------------------------------------------------------
1999 1998 1999 1998 1997 1996 1995
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................................... $ 47,080 $ 29,405 $128,230 $169,007 $169,342 $153,975 $145,415
Cost of revenues(1)........................ 26,256 16,834 71,526 113,005 93,847 85,160 77,267
-------- -------- -------- -------- -------- -------- --------
Gross profit............................... 20,824 12,571 56,704 56,002 75,495 68,815 68,148
Research and development expenses.......... 5,863 5,590 20,533 28,121 25,465 21,834 16,164
Selling, general and administrative
expenses................................. 12,537 11,216 44,599 58,877 48,259 44,861 38,528
Merger expenses............................ -- -- -- 623 69 2,661 1,305
Severance and other charges................ -- -- 255 6,615 -- -- --
-------- -------- -------- -------- -------- -------- --------
Income (loss) from operations.............. 2,424 (4,235) (8,683) (38,234) 1,702 (541) 12,151
Gain on sale of assets..................... -- (2,798) (2,985) -- -- -- --
Interest (income) expense, net............. 1,071 835 3,560 2,271 309 (222) 59
-------- -------- -------- -------- -------- -------- --------
Income (loss) before income taxes.......... 1,353 (2,272) (9,258) (40,505) 1,393 (319) 12,092
Provision (benefit) for income taxes....... 27 -- -- -- 745 (1,154) (56)
-------- -------- -------- -------- -------- -------- --------
Net income (loss).......................... 1,326 (2,272) (9,258) (40,505) 648 835 12,148
Premium on prepaid warrants................ 193 -- 463 -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Net income (loss) attributable to common
stockholders............................. $ 1,133 $ (2,272) $ (9,721) $(40,505) $ 648 $ 835 $ 12,148
======== ======== ======== ======== ======== ======== ========
Net income (loss) per share
Basic.................................... $ 0.04 $ (0.09) $ (0.38) $ (1.65) $ 0.03 $ 0.04 $ 0.65
Diluted.................................. $ 0.04 $ (0.09) $ (0.38) $ (1.65) $ 0.03 $ 0.04 $ 0.58
</TABLE>

<TABLE>
<CAPTION>
AT DECEMBER 31, AT SEPTEMBER 30,
--------------------- --------------------------------------------------------
1999 1998 1999 1998 1997 1996 1995
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit).................... $ 6,731 $(10,366) $ 4,385 $ (9,488) $ 55,159 $ 45,751 $ 34,590
Total assets................................. 130,537 113,910 123,201 121,571 139,923 107,471 83,520
Long-term debt, including current portion.... 4,991 3,029 2,855 3,059 6,414 492 1,242
Notes payable................................ 35,325 36,000 35,627 38,038 10,623 10,558 6,316
Total liabilities............................ 81,708 79,385 76,106 84,774 64,346 43,858 39,171
Prepaid warrants............................. 9,298 -- 9,105 -- -- -- --
Stockholders' equity......................... 39,531 34,525 37,990 36,797 75,577 63,613 44,349
</TABLE>

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

(1) Includes $16.6 million, $1.4 million and $3.1 million of inventory
write-offs in the fiscal years 1998, 1997 and 1996, respectively.

11
<PAGE> 15

BUSINESS

GENERAL

We operate through two divisions -- the Semiconductor Equipment Group and
the Acuity CiMatrix Division.

- - The Acuity CiMatrix Division designs, manufactures and markets two primary
product lines:

-- vision systems used in the general purpose machine vision market for a
variety of industrial applications; and

We were pioneers in the development of machine vision and have utilized our
technology to enter the emerging market for two-dimensional bar code readers. We
developed the technology and own the patents to Data Matrix, a two-dimensional
bar code symbology which can be marked directly onto parts and components. We
placed the Data Matrix symbology into the public domain in order to encourage
the wide spread adoption of this coding system and the sale of our
two-dimensional bar code readers. In addition, we design and manufacture
high-speed bar code scanning equipment for traditional one-dimensional reading
applications such as sorting devices commonly used in e-commerce infrastructure,
logistics, material handling and warehousing applications.

INDUSTRY OVERVIEW

Machine vision refers to the technology using optical sensors and digital
image processing hardware and software to identify, guide, inspect and measure
objects. Machine vision is important for applications in which human vision is
inadequate due to fatigue, visual acuity or speed. In addition, machine vision
is increasingly used to achieve substantial cost savings and improve product
quality. Many types of manufacturing equipment require machine vision because of
the increasing demands for speed and accuracy in manufacturing processes, as
well as the decreasing size and increasing complexity of items being
manufactured.

The semiconductor capital equipment market represents the largest
application for machine vision products. Machine vision is also extensively used
in general industrial applications such as the

12
<PAGE> 16

manufacture of electronics, automotive, aerospace, pharmaceutical and consumer
products. Increasingly, machine vision is being utilized in the automatic
identification and data collection market as a complementary or alternative
technology to traditional laser scanning devices for reading bar codes.

SEMICONDUCTOR CAPITAL EQUIPMENT MARKET

Semiconductor capital equipment is sold primarily to companies engaged in
the manufacture of semiconductor devices in order to expand the capacity of
existing facilities as well as to enable the production of more complex, higher
density and smaller designs. Semiconductors, which are also known as chips, ICs,
or integrated circuits, are critical components used to create an increasing
variety of electronic products and systems. The semiconductor manufacturing
process is divided into the front-end fabrication of semiconductor wafers and
the back-end packaging process which involves the assembly, test and inspection
of the integrated circuits. Our semiconductor capital equipment is used
primarily in the back-end of the semiconductor manufacturing process.

According to the Semiconductor Industry Association, the semiconductor
market expanded from approximately $50.5 billion in 1990 to an estimated $144.1
billion in 1999, representing a compounded annual growth rate of approximately
12.4% during this period. We believe that this growth resulted primarily from
two factors. The first factor is the proliferation of semiconductor applications
due to the rapidly expanding end-user demand for faster, smaller and more
efficient electronic devices with greater functionality and reliability coupled
with an increasingly broad range of applications. The second factor is the
increasing importance of semiconductors in electronic systems. We believe that
these trends will continue to drive the long-term growth of semiconductors.

However, the semiconductor market can be cyclical as a result of periodic
reductions in the demand for integrated circuits. This was evident during the
1996 through 1998 period when the Asian economic crisis led to significantly
lower worldwide demand for semiconductor products and resulted in industry
overcapacity. During this period, semiconductor manufacturers greatly reduced
their capital expenditures causing significantly lower sales for capital
equipment suppliers. In 1999, semiconductor sales rebounded with worldwide
shipments increasing to an estimated $144.1 billion compared to approximately
$125.6 billion in 1998 and approximately $137.2 billion in 1997 according to the
Semiconductor Industry Association. With the semiconductor industry rebound in
1999, we anticipate that manufacturers will need to add capacity to meet
increased demand. According to Cahners In-Stat Group, the worldwide
semiconductor industry is expected to grow at an annual compound rate of 25.5%
for the period of 2000 to 2003, resulting in an anticipated 22.9% increase in
capital spending. With this recovery, semiconductor capital equipment
manufacturers are expected to experience additional increases in orders for
their products.

We believe the requirement for machine vision within the semiconductor
industry, especially in the back-end packaging process, may grow faster than the
overall market for capital equipment, owing to several factors, including:

- the general proliferation of advanced package types, such as ball grid
array and chip-scale packages, and trend towards miniaturization of
semiconductor devices;

- the desire of semiconductor manufacturers to replace slower, older
inspection technology with newer, faster generations of equipment;

- the desire to maximize capacity and improve efficiencies by minimizing
floor space requirements and reducing the total number of systems
employed;

- the emerging need to inspect previously uninspected classes of
semiconductor devices, such as memory chips, due to their increasing
package complexity; and

13
<PAGE> 17

- the requirement to inspect semiconductors at additional steps within the
manufacturing process, most notably wafer-scale inspection during the
application of solder balls for flip-chip packages and package visual
inspection during the transfer of assembled chips from trays to tubes or
tape prior to shipment.

Semiconductor manufacturers are increasingly outsourcing their packaging
requirements to subcontractors. We believe that subcontractors will account for
an increasing percentage of semiconductor capital equipment orders as they
establish new and expand existing packaging facilities. In addition, we believe
that such subcontractors could expand the overall market for semiconductor
capital equipment as they increase their capacity and enhance their production
capabilities.

GENERAL PURPOSE MACHINE VISION MARKET

The electronics industry, including board-level manufacturing, is the
second largest user of machine vision behind the semiconductor industry. General
purpose machine vision is also actively employed in the automotive, aerospace,
pharmaceutical and consumer products markets. A general purpose machine vision
system usually consists of a personal computer equipped with special vision
processing software and a vision board connected to a solid-state video camera.
The camera is used to acquire a digital image of the subject in computer memory.
The vision processing hardware and software is used to extract features from the
image, verify the identity of the subject, detect its location or orientation,
inspect for surface defects and perform non-contact measurements.

Growth in the general purpose machine vision market is driven by the need
to guide high-speed automated assembly equipment and inspect manufactured
products. For example, in pharmaceutical manufacturing, machine vision is
employed to inspect and verify packaging, labeling and quantities. In the
automotive industry, machine vision is used in parts identification, component
inspection, assembly verification and robot guidance. We believe that the
utilization of general purpose machine vision products will continue to increase
as products become smaller and more complex, requiring more accurate
measurements.

AUTOMATIC IDENTIFICATION AND DATA COLLECTION MARKET

The automatic identification and data collection market encompasses
products that mark, read and interpret one-dimensional and two-dimensional bar
codes. Bar code scanners and readers are an integral part of the automatic
identification and data collection market which, according to the Venture
Development Corporation, is an approximate $14.7 billion annual market in 1999
which is estimated to grow to approximately $23.8 billion by 2002, representing
a projected compound annual growth rate of approximately 17.3% over this period.
We believe that the scanning portion of the automated identification and data
collection market will be increasingly penetrated by machine vision
manufacturers, especially in high density applications such as printed circuit
board manufacturing and parts marking and tracking.

The scanning segment of the automatic identification and data collection
market addresses the interpretation of bar codes through a laser scanning or
optical recognition process. According to the Venture Development Corporation,
the stationary or fixed-position one-dimensional bar code scanner market totaled
approximately $825.0 million in 1998 and is projected to grow at approximately
10% per year. We believe that the industry growth rate is representative of
traditional applications for these products such as fixed position scanners used
for retail point of sale. We believe that certain applications will exceed
industry growth rates, particularly those which address sorting needs associated
with package delivery and e-commerce distribution. Within this market, critical
products include high-speed scanning tunnels that are able to read bar code
labels on packages from multiple

14
<PAGE> 18

perspectives as they move rapidly through the sorting line. We believe that the
development of e-commerce infrastructure and the related increased capital
expenditures by shipping companies should stimulate increased demand for fixed
position scanners and ancillary products.

We believe that increasingly, the bar code scanning industry is converging
with the machine vision industry. Bar codes, most notably in the form of
Universal Product Codes, have been in use since the early 1970s. Traditionally,
bar codes are read with lasers, which measure the width of the lines that make
up a bar code. One-dimensional bar codes are typically limited to storing
sixteen alphanumeric characters, can be read in a limited range of orientations
and require high-contrast labels. The advent of two-dimensional bar codes in the
mid-1980s significantly altered the application of bar codes. Two-dimensional
bar codes can store hundreds of alphanumeric characters, can be read in any
orientation and can be marked directly on manufactured parts. These advantages
are critical in providing a high degree of traceability, making two-dimensional
bar codes more flexible than traditional one-dimensional alternatives.

There are three principal two-dimension symbologies, all of which are in
the public domain, including our Data Matrix, Symbol Technologies Inc.'s PDF417
format and United Parcel Services' MaxiCode. We believe that the Data Matrix
symbology is well suited for the component marking market due to its ability to
be inscribed on virtually any surface, including curved, low-reflectivity and
matte surfaces, and can be produced in a fraction of the space of an alternative
bar code.

According to the Venture Development Corporation, the market for
two-dimensional bar codes is expected to grow from an estimated $158.0 million
of sales in 1999 to approximately $657.0 million in annual sales in 2002,
representing an annual growth rate in excess of 50%. A fundamental growth factor
of two-dimensional symbology is the trend among manufacturers to mark discrete
components, particularly in compliance driven industries such as semiconductor,
aerospace and automotive manufacturing.

While basic camera-based scanners are capable of reading high contrast and
high quality Data Matrix images, we believe that the broad application of Data
Matrix symbology on parts and components requires the imaging and processing
technology typically associated with machine vision.

STRATEGY

- Leverage our leading position in selected semiconductor capital equipment
market niches. We believe we have the largest installed base of products
in several segments of the semiconductor capital equipment market, such
as lead scanners, tape and reel packaging equipment and ball grid array
assembly machinery. Through our commitment to research and product
development, we intend to continue to set the industry standard for each
of these product lines. We intend to capitalize upon our large installed
base of products and reputation for quality to provide new applications
within the semiconductor capital equipment market for our machine vision
technology. As an example, we have already begun to leverage our strong
relationships with semiconductor manufacturers by introducing them to new
products from our Acuity CiMatrix Division.

- Further develop the two-dimensional bar code market as the inventor of
Data Matrix symbology. Anticipating that manufacturers will increasingly
identify and track individual components in order to comply with
standards, improve product traceability and manage inventories, we placed
Data Matrix into the public domain to facilitate its adoption as an

15
<PAGE> 19

international standard. We believe markets such as the semiconductor,
electronics, aerospace and automotive industries will be among the
earliest users of Data Matrix. We intend to capitalize upon our knowledge
of both Data Matrix and machine vision by working with the leaders in our
targeted markets to encourage the use of our MXi family of readers.

- Capitalize upon the convergence of the machine vision and bar code
industries. We believe that emerging applications, especially those for
e-commerce infrastructure, will require both one-dimensional laser-based
products and two-dimensional machine vision products. As two-dimensional
bar code systems are adopted for new applications, we believe machine
vision will increasingly complement traditional laser-based technology.
As a supplier of both product families, we believe we are uniquely
positioned to offer fully integrated automatic identification and data
collection systems.

PRINCIPAL PRODUCTS

We sell our products to the semiconductor capital equipment, general
purpose machine vision and automatic identification and data collection markets.
Within the semiconductor capital equipment market, our products are used in the
final stages of the back-end semiconductor manufacturing process. Within the
industrial machine vision market, our products are used to inspect the physical
characteristics of industrial and consumer components from discrete components
to assembled products. Within the automated identification and data collection
market, our machine vision and complementary scanning products are used to scan
one-dimensional and two-dimensional bar codes as a means for identifying and
tracking the movement of components and packages. Our state-of-the-art products
range from board-level machine vision systems priced at under $5,000 to
fully-automated wafer inspection systems priced at approximately $500,000.

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. Our lead scanning systems, which can be found in most back-end
semiconductor manufacturing lines, generally perform the final inspection of
semiconductor packages prior to their preparation for shipment to the end-user.
Our lead scanning systems offer automated, high-speed, three-dimensional
semiconductor package lead inspection with the added feature of non-contact
scanning of the packages in their shipping trays which is known as in-tray
scanning. The systems use a laser-based, non-contact, three-dimensional
measurement technique to inspect and sort a wide variety of semiconductor
package types, such as quad flat packs, thin quad flat packs, chip scale
packages, wafer scaled products, ball grid arrays and thin small outline packs
in their carrying trays. The system measurements captured by our systems include
coplanarity, total package height, true position spread and span, as well as
lead angle, width, pitch and gap.

The development of a new kind of integrated circuit, used primarily in the
wireless communications industry, has created a new requirement for high-speed
wafer inspection equipment. These ICs, called flip chips, necessitate ball grid
arrays to be applied and inspected during the front-end fabrication process, as
well as the back-end packaging process. Recognizing this need, we introduced the
WS-1000, a three-dimensional machine vision-based inspection system. We believe
that our WS-1000 is the only product currently capable of providing
semiconductor companies the large number of inspections they desire -- more than
1,000 inspections per second -- at the speeds they require -- processing from
four to six eight-inch wafers per hour.

16
<PAGE> 20

Systemation offers semiconductor handling systems, including tape and reel
component processing systems, designed to transfer and inspect a variety of
integrated circuit packages. Systemation's tape and reel packaging product can
be integrated into our lead scanners to collect acceptable products and place
them into packaging media as required by different customers. We believe that
Systemation's expertise in designing and manufacturing systems that transfer
semiconductors between media while providing camera-based machine vision
inspection enables us to further expand the breadth of our product offerings to
the semiconductor market.

Vanguard is a supplier of ball attach equipment used in ball grid array and
chip scale package assembly for the semiconductor and connection industries.
These devices attach solder balls to the integrated circuit in order to generate
a medium which, when heated, will connect the package to the printed circuit
board. Vanguard's products are deployed on the back-end manufacturing line prior
to our lead scanner testing device.

We believe that we are the leading supplier of three-dimensional lead and
ball grid array inspection systems, tape and reel handling systems and ball grid
array ball attach systems; which are three operations at the final stages of the
back-end packaging process. This enables us to supply our customers with
integrated solutions to meet their packaging needs and should prove to be a
significant competitive advantage.

ACUITY CIMATRIX DIVISION

The Acuity CiMatrix Division designs, manufactures and markets
two-dimensional machine vision systems and lighting products as well as
one-dimensional and two-dimensional data collection products and bar code
reading systems. 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.

Our Acuity CiMatrix machine vision systems use an image processing
computer, software and solid-state video cameras to perform functions such as
measurement, flaw detection and inspection of manufactured products. These
products examine an image of a manufactured product in order to ascertain
physical characteristics, identify deviations and check for identification. For
the general-purpose machine vision market, our Acuity CiMatrix Division offers
single-board machine vision systems, which can be tailored to the needs of
specific industries via software modules. Vertical industries currently served
include semiconductor, electronics, automotive and packaging/pharmaceutical.
Acuity CiMatrix's principal machine vision product, Visionscape, was introduced
in September 1998. Visionscape is our first machine vision product platform on a
single printed circuit board for the Pentium/Windows PC. This product family is
designed to meet the needs of original equipment manufacturers, which
incorporate vision products into their systems, as well as for direct use by
manufacturers on their factory floor.

Our Acuity CiMatrix data collection and bar code reading systems use
machine vision to read and collect data from one- and two-dimensional bar codes
for purposes such as sorting, manufacturing quality control, traceability and
security. Our product offerings also include fixed position one-dimensional
scanners using laser-based technology, principally used in sorting, as well as
both fixed and hand-held two-dimensional camera-based readers.

In two-dimensional applications, we have concentrated our efforts on
scanning systems compatible with Data Matrix, a symbology which we believe has a
number of advantages over other two-dimensional bar codes in the public domain.
We believe that the smaller size of the Data Matrix symbology enables it to be
used in miniaturized applications. Data Matrix is read using machine

17
<PAGE> 21

vision as compared to traditional laser scanning systems. The machine vision
scanning process enables Data Matrix to exhibit a wider span of character
integrity and, hence, enables Data Matrix to be applied to a variety of
surfaces. We believe that these characteristics make Data Matrix the preferred
symbology for applications in which components need to be marked directly, such
as in parts identification. For example, as part of a move to a paperless
manufacturing process, one of our customers, Pratt & Whitney, an aircraft engine
manufacturer, is starting to apply two-dimensional bar codes to critical engine
components. We believe that these systems will become increasingly common due to
the trend toward reducing electronic component sizes and the desire to improve
the traceability of each component.

In December 1998, Acuity CiMatrix introduced the MXi, the first hand-held
imager for reading digital direct part marks, one-dimensional bar codes and new,
digital two-dimensional symbologies, such as the Data Matrix code. The MXi
resulted from a joint development and marketing arrangement with Polaroid
Corporation. In November 1999, we acquired Polaroid's interest in the MXi,
including all relevant intellectual property rights, for $2.0 million. We will
pay Polaroid a royalty based on net sales of the MXi and concurrently entered
into an agreement with Polaroid for it to manufacture this product on our
behalf. We believe we are uniquely positioned in the emerging two-dimensional
bar code market by virtue of our expertise in machine vision and the advantages
that such technology can afford over traditional laser scanning systems.

By incorporating our expertise in machine vision with our innovations in
bar code technologies, we are uniquely positioned to offer integrated solutions
for a variety of automation needs. We can combine our semiconductor inspection
capabilities with our Data Matrix symbology to serialize semiconductor wafer
chips. We have designed integrated systems with our bar code scanning equipment
and two-dimensional machine vision to automate package and material handling.
Collectively, these capabilities give computers the power of sight.

MANUFACTURING

Our manufacturing strategy is to produce internally only those components
which possess a critical technology and subcontract all other components. 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 intricate electronic
subassemblies, as well as complex wiring harnesses.

We manufacture products for the Semiconductor Equipment Group in Hauppauge,
New York, Tucson, Arizona and New Berlin, Wisconsin. We manufacture products for
the Acuity CiMatrix Division in Canton, Massachusetts and Weare, New Hampshire.
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 and supporting those sales with a world
wide service and support organization which consisted of 92 people as of
December 31, 1999. Due to the capital commitment involved in the purchase of our
systems and their importance in the semiconductor manufacturing process, the
selling cycle for our Semiconductor Equipment Group's products, generally, is
between six to nine weeks from initial customer contact to closing of a sale. 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. This
group's sales activities in the domestic market are

18
<PAGE> 22

handled by direct sales personnel, which consisted of 42 people as of December
31, 1999. The Semiconductor Equipment 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 the Philippines, Singapore and Taiwan.

The Acuity CiMatrix Division markets its products through a combination of
direct sales personnel, which consisted of 44 people as of December 31, 1999, as
well as distributors, value added resellers and system integrators. Our direct
sales force is supported by a service organization which consisted of 48 people
as of December 31, 1999. For sales made through distributors, the Acuity
CiMatrix Division supports these activities with direct sales management and
technical support personnel. The Acuity CiMatrix Division maintains sales and
technical support offices in various locations in the United States, as well as
in the United Kingdom, France and Germany.

ENGINEERING, PRODUCT DEVELOPMENT AND RESEARCH

We believe that our engineering, product development and research functions
are critical to our ability to maintain our leadership position in our current
markets and to develop new products. As of December 31, 1999 we employed 200
people who are dedicated to engineering, product development and research
functions. As of December 31, 1999, we owned approximately 100 issued U.S.
patents, with expiration dates ranging from August 2000 to June 2018.

Our research and development efforts over recent years have been largely
devoted to continued development of advanced two-dimensional and
three-dimensional vision technology and applications software for use in various
inspection and process control automation. Research and development
expenditures, net of capitalized software development costs, were $20.5 million,
$28.1 million and $25.5 million for the fiscal years ended September 30, 1999,
1998 and 1997, respectively. In the fiscal years ended September 30, 1999, 1998
and 1997, we capitalized $4.9 million, $7.4 million and $4.8 million,
respectively, of our software development costs in accordance with the
provisions of Statement of Financial Accounting Standards No. 86.

SOURCES OF SUPPLY

To support our internal operations and to extend our overall capacity, we
purchase a wide variety of components, assemblies and services from outside
manufacturers, distributors and service organizations. We have not experienced
any significant difficulty in obtaining adequate supplies to perform under our
contracts. We are not dependent upon any supplier for more than 10% of our
purchases in the fiscal year ended September 30, 1999.

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.

CUSTOMERS

No customers accounted for more than 10% of sales during the fiscal year
ended September 30, 1999. Intel Corporation accounted for 20% and 23% of our
revenues during the fiscal years ended September 30, 1998 and 1997,
respectively. No other customer accounted for more than 10% of sales during
these fiscal years. For the fiscal year ended September 30, 1999, the top five
customers for our Semiconductor Equipment Group were Amkor Technology, Inc.,
Intel Corporation, International Business Machines Corporation, Motorola, Inc.
and STMicroelectronics N.V. During the same

19
<PAGE> 23

period, the top five customers of our Acuity CiMatrix Division were
DaimlerChrysler AG, Minnesota Mining and Manufacturing Company and three system
integrators, Crisplant, Inc., Saddlebrook Controls and Sandvik Sorting Systems,
Inc.

BOOKINGS AND BACKLOG

We define our bookings during a fiscal period as incoming orders
deliverable to customers in the next twelve months less cancellations. For the
three months ended December 31, 1999, bookings were $55.9 million. This compares
to bookings of $47.6 million for the three months ended September 30, 1999 and
$31.5 million for the three months ended December 31, 1998. We generally ship
more than 50% of our bookings within the quarter in which the order is received.
We believe that our increase in bookings is reflective of the recovery and
continued strength in the markets we serve.

We define our backlog as customer orders available for shipment in the next
twelve months as of the end of the fiscal period. As of December 31, 1999, our
backlog was $44.0 million, compared to $35.3 million and $18.8 million at
September 30, 1999 and December 31, 1998, respectively. The increase in backlog
is primarily reflective of higher bookings during the second half of fiscal year
1999.

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 more than 100 firms, entered
the industry in the 1980's and that most of these were small, private companies.
Over the last several years, we believe that 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 competitors are ICOS Vision
Systems NV in semiconductor inspection, Ismeca Europe S.A. in tape and reel
handlers, Accu-Sort Systems, Inc. in one-dimensional bar code scanning and
Cognex Corporation in general purpose machine vision. The two dimensional bar
code reader market is in its infancy and we are not aware of any established
competitors. We believe that we are a significant competitor in the machine
vision industry based upon the breadth of our product lines, our established
customer base, our technical knowledge and our applications engineering
expertise. The pricing of our semiconductor inspection systems is somewhat
higher, generally, than those of our competitors, but we do not regard this
factor as a significant competitive disadvantage as customers have historically
demonstrated their willingness to pay for features that are unavailable in our
competitors' product offerings.

EMPLOYEES

As of December 31, 1999 we employed 737 persons, of whom 340 were
engineering and other technical personnel. None of our employees is a member of
a labor union.

20
<PAGE> 24

PROPERTIES

We lease all of our facilities, which include the following:

<TABLE>
<CAPTION>
SIZE ANNUAL
LOCATION USE (SQ. FT.) RENT LEASE EXPIRATION
- -------- --------------------------- --------- -------- ------------------
<S> <C> <C> <C> <C>
Corporate
Headquarters
Canton, Massachusetts Corporate headquarters, 60,000 $471,000 July 2003
Acuity CiMatrix Group
manufacturing and sales
Other Locations
New Berlin, Wisconsin Systemation manufacturing 90,000 $605,000 September 2012
and sales
Hauppauge, New York Electronics division 65,000 $586,000 March 2001
manufacturing and sales
Nashua, New Hampshire Acuity CiMatrix Group 50,000 $355,000 March 2000
engineering and design
Tucson, Arizona Vanguard manufacturing and 38,000 $201,000 February 2002
sales
Weare, New Hampshire Acuity CiMatrix Group 12,000 $32,000 December 2000
lighting manufacturing
and sales
Redditch, England Sales and technical support 11,000 $213,000 September 2017
Singapore Sales and technical support 5,000 $294,000 September 2000
Huntsville, Alabama Symbology research center 2,600 $33,000 March 2000
</TABLE>

We also maintain sales offices in France, Germany, Japan, the Philippines
and Taiwan.

LEGAL PROCEEDINGS

In October 1995, we initiated an action against View Engineering, Inc., now
a subsidiary of GSI Lumonics Inc., which was formerly known as General Scanning,
Incorporated, in the United States District Court for the Central District of
California alleging infringement of our patent relating to full tray scanning.
We are seeking both injunctive relief and monetary damages. A trial was
completed in November 1999, with final briefs submitted in January 2000. The
Court's decision is expected during the first half of 2000.

In April 1996, we initiated another action against View Engineering in the
United States District Court for the Central District of California, alleging
infringement by View Engineering of a number of our patents in connection with
their assembly and distribution of three-dimensional machine vision products. In
June 1998, the District Court found infringement by View Engineering and issued
an injunction against View Engineering for the remaining 13 year life of the
patent. This ruling has been appealed to the United States Court of Appeals for
the Federal Circuit.

In conjunction with the settlement of previously outstanding litigation, in
June 1998 General Scanning granted us an exclusive license to all General
Scanning technology relating to two-dimensional and three-dimensional laser
scanning and furthermore agreed not to engage in business related to inspection
of semiconductor packages for a period of ten years. For the exclusive license
and this agreement, General Scanning received compensation of approximately $3.8
million.

21
<PAGE> 25

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

RESULTS OF OPERATIONS

THREE MONTHS ENDED DECEMBER 31, 1999 AND 1998

Our revenues were $47.1 million for the three months ended December 31,
1999, compared to $29.4 million for the three months ended December 31, 1998, an
increase of 60.1%. The increase in revenues year-to-year was associated with the
increased levels of orders and revenues for semiconductor inspection and
handling equipment. For the three months ended December 31, 1999, revenues for
our Semiconductor Equipment Group represented 74.9% of total revenues, compared
to 60.3% of total revenues for the three months ended December 31, 1998.

For the three months ended December 31, 1999, our bookings were $55.9
million, 17.4% higher than for the three months ended September 30, 1999, and
were approximately 77.3% higher than the three months ended December 31, 1998.
The orders increase was related to the same factors which affected revenues.

Our gross profit margin was 44.2% of revenues for the three months ended
December 31, 1999, compared to 42.8% of revenues for the three months ended
December 31, 1998. The higher gross profit margin primarily reflects the impact
of lower fixed costs as a percentage of the higher level of sales attributable
to the Semiconductor Equipment Group.

Our research and development expenses were $5.9 million, or 12.5% of
revenues, for the three months ended December 31, 1999, compared to $5.6
million, or 19.0% of revenues, for the three months ended December 31, 1998. We
have continued to invest in new product development, including new semiconductor
inspection and component handling systems, as well as enhancing our
one-dimensional bar code reading products and expanding our new machine vision
platform, Visionscape. For the three months ended December 31, 1999, we
capitalized $1.0 million in software development costs under Statement of
Financial Accounting Standards No. 86, compared to $1.4 million for the three
months ended December 31, 1998.

Our selling, general and administrative expenses were $12.5 million, or
26.6% of revenues, for the three months ended December 31, 1999, compared to
$11.2 million, or 38.1% of revenues, for the three months ended December 31,
1998. The higher level of expenses reflects a combination of the higher level of
litigation costs and a higher level of variable selling expenses associated with
the increases in revenues.

In fiscal year 1999, we sold our Aircraft Safety division to a subsidiary
of B.F. Goodrich for $4.1 million in cash. We no longer considered this
technology a key component of our product portfolio or future strategic
direction. We sold certain inventory, equipment and intellectual property in the
transaction, resulting in a gain of $2.8 million. Proceeds from the sale were
used for working capital requirements and to repay $2.0 million of outstanding
bank debt.

Net interest expense was $1.1 million for the three months ended December
31, 1999, compared to $0.8 million for the three months ended December 31, 1998.
The increase in interest expense primarily reflects a higher interest rate
charged on bank borrowings.

The tax provision for the three months ended December 31, 1999 reflects
minimum federal income taxes. There was no tax provision for the three months
ended December 31, 1998, due to the loss in that fiscal quarter.

22
<PAGE> 26

Net income attributable to common stockholders was $1.1 million, or $0.04
per share, for the three months ended December 31, 1999, compared with a net
loss of $2.3 million, or $0.09 per share, for the three months ended December
31, 1998. Excluding a $2.8 million gain from the sale of our Aircraft Safety
division in December 1998, the net loss for the three months ended December 31,
1998 was $5.1 million, or $0.20 per share.

FISCAL YEARS ENDED SEPTEMBER 30, 1999 AND 1998

Our revenues were $128.2 million for the fiscal year ended September 30,
1999, compared to $169.0 million for the fiscal year ended September 30, 1998, a
decline of 24.1%. The lower revenues year-to-year largely reflect the effect of
the severe semiconductor industry downturn which began in March 1998. Revenues
for our Semiconductor Equipment Group were down 32.4% and revenues for our
Acuity CiMatrix Division were down 2.3% from the prior year. Semiconductor
equipment revenues declined because of 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. The year-
to-year decline in revenues for our Acuity CiMatrix Division primarily resulted
from lower revenues from European customers due to our decision to transition
our marketing efforts away from higher dollar value products towards a new
generation of less expensive but higher margined products. This decline was
partially offset by higher revenues from U.S. customers.

Our gross profit margin, as a percentage of revenues, was 44.2% for the
fiscal year ended September 30, 1999, compared to a gross profit margin of 33.1%
of revenues for the fiscal year ended September 30, 1998. 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, gross profit margin was 42.9% for the
fiscal year ended September 30, 1998. The gross profit margin increased in the
fiscal year ended September 30, 1999, as result of a higher mix of sales of
Acuity CiMatrix product as a percentage of total sales for the current year.

In the third and fourth quarters of fiscal year 1998, we recorded
provisions of $4.5 million and $12.1 million, respectively, primarily for excess
and obsolete inventories, related principally to our semiconductor inspection
and handling equipment. These provisions were necessary to reduce the carrying
value of inventories to their appropriate net realizable value and largely
reflected reduced demand for older generation products as a result of the severe
semiconductor industry downturn. The inventory balances at September 30, 1998,
net of inventory provisions, contained older generation products of
approximately $4.5 million. Substantially all of the older generation products
were sold or disposed of in fiscal year 1999. 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 business conditions, shortened
product life cycles, the introduction of new products and the effect of new
technologies.

The gross profit margin, as a percentage of revenues, for our Semiconductor
Equipment Group increased to 39.3% of revenues in the fiscal year ended
September 30, 1999, compared to 28.6% of revenues for the fiscal year ended
September 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
prior fiscal year. The majority of the increase was due to the inventory
provisions recorded in fiscal year 1998.

Our research and development expenses were $20.5 million, or 16.0% of
revenues, in fiscal year 1999, compared to $28.1 million, or 16.6% of revenues,
in fiscal year 1998. The lower level of expenses reflects the combination of
workforce reductions and other expense reductions that we implemented primarily
in the latter half of fiscal year 1998. We are continuing to invest significant

23
<PAGE> 27

resources into new product development in both our Semiconductor Equipment Group
and our Acuity CiMatrix 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. During
fiscal year 1999, we capitalized $4.9 million of software development costs, in
accordance with SFAS No. 86, compared to $7.4 million in fiscal year 1998.

Our selling, general and administrative expenses were $44.6 million, or
34.8% of revenues, in fiscal year 1999, compared to $58.9 million, or 34.8% of
revenues, in fiscal year 1998. The lower level of expenses largely reflects the
combination of the cost reduction steps taken by us primarily in the latter half
of fiscal year 1998, lower variable selling costs on the decreased level of
revenues and the absence of significant litigation costs which were incurred in
the prior year.

During fiscal year 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 CiMatrix two-dimensional machine vision
operations with our CiMatrix one-dimensional and two-dimensional bar code
reading and data collection operations.

Primarily as a result of these steps, we took a total charge of $6.6
million in charges in fiscal year 1998, of which $3.8 million was recorded for
severance payments to employees, $1.5 million was recorded for costs associated
with changing distributions in Asia, $1.1 million was related to a non-cash
write-off of previously capitalized software development costs and $0.2 million
was recorded for costs associated with the consolidation of the Acuity and
CiMatrix operations.

Severance and other charges were $0.3 million for fiscal year 1999,
compared to $6.6 million in the prior fiscal year. The current charges relate to
reductions in personnel, particularly in Europe. The prior year spending relates
to the cost reduction steps taken to lower our operating expenses. Amounts
remaining from the prior year severance and other charges are shown below:

<TABLE>
<CAPTION>
LIABILITY AT CASH LIABILITY AT
SEPTEMBER 30, 1998 EXPENDITURES SEPTEMBER 30, 1999
------------------ ------------ ------------------
<S> <C> <C> <C>
Severance payments to employees.... $1,384 $1,384 $ --
Costs for changes in Asia
distributors....................... 500 245 255
Costs to consolidate
Acuity/CiMatrix.................. 215 215 --
------ ------ ----
Total.................... $2,099 $1,844 $255
====== ====== ====
</TABLE>

The 1999 severance and other charges were paid out in fiscal year 1999. No
amounts were accrued as of September 30, 1999.

Net interest expense was $3.6 million in fiscal year 1999, compared to $2.3
million in fiscal year 1998. The increase in interest expense is a result of the
significantly higher level of bank borrowings in fiscal year 1998 as well as
amortization of $100,000 of value of warrants issued to the banks. Proceeds from
bank borrowings during fiscal year 1998 were primarily used to fund working
capital requirements and operating losses.

The gain on sale of assets of $3.0 million for fiscal year 1999 primarily
relates to the sale of our Aircraft Safety Division.

There was no tax provision in fiscal years 1999 and 1998 as a result of the
loss for the periods.

24
<PAGE> 28

For fiscal year 1999, we had a net loss of $9.7 million, or a loss of $0.38
per share, of which $0.5 million relates to the premiums accrued on our prepaid
warrants. In fiscal year 1998, we had a net loss of $40.5 million, or a loss of
$1.65 per share. The net loss for fiscal year 1998 included inventory provisions
of $16.6 million and unusual charges of $6.6 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 year 1998 to $28.4 million in the fourth quarter of fiscal
year 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 from 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 years ended September 30, 1998 and 1997 was reduced by a
provision for excess and obsolete inventories of $16.6 million and $1.4 million,
respectively. Exclusive of these inventory provisions, gross profit margin was
42.9% for the fiscal year ended September 30, 1998 and 45.4% for fiscal year
1997. The gross profit margin declined sequentially in fiscal year 1998 as
result of proportionately high fixed manufacturing costs relative to lower
shipment levels, as well as the effect of a lower margin product mix.

During fiscal year 1998, we took multiple steps to reduce our expenses and
to lower the level of revenues necessary for break-even results of operations.
Primarily as a result of these steps, we took a total charge of $6.6 million in
charges in fiscal year 1998, of which $3.8 million was recorded for severance
payments to employees, $1.5 million was recorded for costs associated with
changing distributions in Asia, $1.1 million was related to a non-cash write-off
of previously capitalized software development costs and $0.2 million was
recorded in costs associated with the consolidation of the Acuity and CiMatrix
operations.

Our research and development expenses were $28.1 million, or 16.6% of
revenues, in fiscal year 1998, compared to $25.5 million, or 15.0% of revenues,
in fiscal year 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 year 1998, we capitalized $7.4 million
of software development costs, in accordance with SFAS No. 86, compared to $4.8
million in fiscal year 1997.

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

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

25
<PAGE> 29

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

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

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

QUARTERLY RESULTS

The following table presents our unaudited quarterly operating results for
each of the eight quarters ended September 30, 1999, both in dollars and as a
percentage of our total revenue for each quarter. This information has been
derived from our consolidated financial statements. You should read this
information in conjunction with our Consolidated Financial Statements and notes
thereto appearing elsewhere in this prospectus. You should not draw any
conclusions about our future results from the results of operations for any
quarter.

<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------------------------------------------
DEC. 31, SEPT. 30, JUNE 30, MAR. 31, DEC. 31, SEPT. 30, JUNE 30, MAR. 31,
1999 1999 1999 1999 1998 1998 1998 1998
-------- --------- -------- -------- -------- --------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Revenues.............................. $47,080 $40,271 $31,260 $27,294 $29,405 $ 28,402 $ 39,090 $47,727
Cost of revenues...................... 26,256 22,242 17,017 15,433 16,834 30,403 28,171 26,686
------- ------- ------- ------- ------- -------- -------- -------
Gross profit.......................... 20,824 18,029 14,243 11,861 12,571 (2,001) 10,919 21,041
Research and development expenses..... 5,863 5,257 4,804 4,882 5,590 6,594 7,508 7,390
Selling, general and administrative
expenses............................ 12,537 11,494 11,235 10,654 11,216 12,664 15,662 15,657
Merger expenses....................... -- -- -- -- -- -- -- --
Severance and other charges........... -- -- 255 -- -- 1,011 2,420 3,184
------- ------- ------- ------- ------- -------- -------- -------
Income (loss) from operations......... 2,424 1,278 (2,051) (3,675) (4,235) (22,270) (14,671) (5,190)
Interest (income) expense, net........ 1,071 991 1,047 687 835 781 762 482
(Gain) loss on sale of assets......... -- -- 63 (250) (2,798) -- -- --
------- ------- ------- ------- ------- -------- -------- -------
Income (loss) before income taxes..... 1,353 287 (3,161) (4,112) (2,272) (23,051) (15,433) (5,672)
Provision (benefit) for income
taxes............................... 27 -- -- -- -- (108) -- --
------- ------- ------- ------- ------- -------- -------- -------
Net income (loss)..................... 1,326 287 (3,161) (4,112) (2,272) (22,943) (15,433) (5,672)
Premium on prepaid warrants........... 193 193 193 77 -- -- -- --
------- ------- ------- ------- ------- -------- -------- -------
Net income (loss) attributable to
common stockholders................. $ 1,133 $ 94 $(3,354) $(4,189) $(2,272) $(22,943) $(15,433) $(5,672)
======= ======= ======= ======= ======= ======== ======== =======
Net income (loss) per share
Basic............................... $ 0.04 $ 0.00 $ (0.13) $ (0.17) $ (0.09) $ (0.92) $ (0.63) $ (0.23)
Diluted............................. $ 0.04 $ 0.00 $ (0.13) $ (0.17) $ (0.09) $ (0.92) $ (0.63) $ (0.23)
Weighted average shares:
Basic............................... 27,373 27,069 25,837 24,885 24,876 24,847 24,609 24,517
Diluted............................. 30,492 27,775 25,837 24,885 24,876 24,847 24,609 25,517
OTHER DATA:
Bookings.............................. $55,944 $47,647 $36,740 $30,852 $31,548 $ 20,473 $ 23,690 $44,527
</TABLE>

26
<PAGE> 30

<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------------------------------------------
DEC. 31, SEPT. 30, JUNE 30, MAR. 31, DEC. 31, SEPT. 30, JUNE 30, MAR. 31,
1999 1999 1999 1999 1998 1998 1998 1998
-------- --------- -------- -------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AS A PERCENTAGE OF TOTAL REVENUES
Revenues.............................. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues...................... 55.8 55.2 54.4 56.5 57.2 107.0 72.1 55.9
------- ------- ------- ------- ------- -------- -------- -------
Gross profit.......................... 44.2 44.8 45.6 43.5 42.8 (7.0) 27.9 44.1
Research and development expenses..... 12.5 13.1 15.4 17.9 19.0 23.2 19.2 15.5
Selling, general and administrative
expenses............................ 26.6 28.5 35.9 39.0 38.1 44.6 40.1 32.8
Merger expenses....................... -- -- -- -- -- -- -- --
Severance and other charges........... -- -- 0.8 -- -- 3.6 6.2 6.7
------- ------- ------- ------- ------- -------- -------- -------
Income (loss) from operations......... 5.1 3.2 (6.5) (13.4) (14.3) (78.4) (37.1) (10.9)
(Gain) loss on sale of assets......... -- -- 0.2 (0.9) (9.5) -- -- --
Interest (income) expense, net........ 2.3 2.5 3.4 2.5 2.9 2.7 1.9 1.0
------- ------- ------- ------- ------- -------- -------- -------
Income (loss) before income taxes..... 2.9 0.7 (10.1) (15.0) (7.7) (81.1) (39.5) (11.9)
Provision for income taxes............ 0.1 -- -- -- -- (0.3) -- --
------- ------- ------- ------- ------- -------- -------- -------
Net income (loss)..................... 2.8 0.7 (10.1) (15.1) (7.7) (80.8) (39.5) (11.9)
Premium on prepaid warrants........... 0.4 0.5 0.6 0.3 -- -- -- --
------- ------- ------- ------- ------- -------- -------- -------
Net income (loss) attributable to
common stock holders................ 2.4% 0.2% (10.7)% (15.3)% (7.7)% (80.8)% (39.5)% (11.9)%
======= ======= ======= ======= ======= ======== ======== =======
</TABLE>

FISCAL QUARTERS BEGINNING MARCH 31, 1998 AND ENDED DECEMBER 31, 1999

Primarily as a result of a severe downturn in the semiconductor capital
equipment industry, our revenues declined from $47.7 million in the quarter
ended March 31, 1998 to $28.4 million in the quarter ended September 30, 1998.
Our revenues continued to be impacted in the first half of fiscal year 1999. 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 largely as a result of lower revenues from customers in Asia and
Europe. Subsequently, our revenues increased $19.8 million from $27.3 million in
the quarter ended March 31, 1999 to $47.1 million in the quarter ended December
31, 1999. The increase in revenues was primarily associated with increased
levels of orders and shipments for semiconductor inspection and handling
equipment.

Our revenue trend was precipitated by a reduction in bookings which
declined to $20.5 million in the quarter ended September 30, 1998 from $44.5
million in the quarter ended March 31, 1998. Primarily due to the rebound in the
semiconductor industry, our bookings increased to $55.9 million in the quarter
ended December 31, 1999.

As a percentage of revenues, our gross profit margin was 44.1% for the
quarter ended March 31, 1998, declining to a negative gross profit margin of
7.0% for the quarter ended September 30, 1998. Exclusive of inventory write-down
provisions, our gross profit margin would have been 35.4% for the quarter ended
September 30, 1998. With increasing bookings and the resulting increase in
revenues, our gross profit margin as a percentage of revenues increased to 44.2%
for the quarter ended December 31, 1999.

The gross profit margin declined during fiscal year 1998 as a result of
proportionately high fixed manufacturing costs relative to lower shipment
levels, as well as the effect of a lower margin product mix. Our gross profit
increased slightly during fiscal year 1999 as a result of cost reductions taken
in the second half of fiscal year 1998 and a higher mix of Acuity CiMatrix
products as a percentage of total revenues.

Research and development spending is generally tied to product development
cycles, rather than to revenues. During fiscal year 1998, we were required to
fund the concurrent development of

27
<PAGE> 31

multiple products serving both semiconductor capital equipment and machine
vision markets. These product developments were generally completed by the
quarter ended September 30, 1998.

Beginning in the quarter ended June 30, 1998, selling, general and
administrative expenses declined relative to each preceding quarter. The decline
was generally due to our efforts to match selling, general and administrative
expense to revenue levels. Spending increased beginning in the period ended June
30, 1999 with the recovery of the semiconductor industry and our revenues.

In response to the downturn in the semiconductor industry, we took multiple
steps to reduce our expenses and to lower the level of revenues necessary for
break-even results of operations, including 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 a reduction in discretionary spending
and capital expenditures. The charges associated with these workforce reductions
resulted in the recording of $6.6 million in severance and other charges during
the period of March through September 1998. In addition, during the third
quarter ended June 30, 1999, we incurred approximately $0.3 million of severance
costs to restructure our sales effort in Europe.

LIQUIDITY AND CAPITAL RESOURCES

Our cash balance decreased $3.9 million, to $2.4 million, for the three
months ended December 31, 1999, as a result of $2.4 million of net cash used in
operating activities, $1.7 million of net cash used in investing activities and
$0.3 million of net cash provided by financing activities.

The $2.4 million of net cash used in operating activities was primarily a
result of an increase in accounts receivable of $7.8 million and a $1.0 million
increase in inventories, which was partially offset by the current quarter's net
income of $1.3 million, depreciation and amortization of $2.4 million and a $3.7
million increase in accounts payable.

Additions to plant and equipment were $0.7 million for the three months
ended December 31, 1999, as compared to $0.05 million for the three months ended
December 31, 1998. The capitalized software development costs for the three
months ended December 31, 1999 were $1.0 million, which were slightly above the
amortization charge of $0.8 million.

At December 31, 1999, we had borrowings of $35.5 million outstanding under
our revolving credit agreement with our domestic banks which is collateralized
by substantially all of our domestic tangible and intangible assets. Borrowings
under the credit agreement currently bear interest at the prime rate plus two
percent. During the third quarter of fiscal year 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
December 31, 1999. We must either repay our total bank indebtedness prior to
March 17, 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, we issued warrants to
our lending banks covering 750,000 shares, at an exercise price of $3.96 per
share, of which 250,000 warrants were immediately exercisable. All, or a
portion, of the remaining 500,000 warrants are only exercisable if the lending
banks extend the credit agreement beyond the original maturity date for
pre-determined periods. We are currently working to replace this revolving
credit facility.

We believe that through a combination of obtaining additional external
capital and improvements in working capital 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. Given the significant upturn in both revenues and bookings experienced
by our Semiconductor Equipment Group in the latter months of fiscal year 1999
and the continuation of the trend into the first quarter of fiscal year 2000, we
believe that our banks will forebear from initiating

28
<PAGE> 32

any default declaration for a reasonable period of time if we are unable to
either renegotiate or replace our current bank credit facility prior to its
expiration on March 17, 2000. However, in the absence of such forebearance and
if a default is declared by our banks, it is likely that our cash resources
would be severely constrained. On January 19, 2000, we filed a registration
statement to sell 5.0 million shares of our common stock. We believe that the
completion of that offering will enable us to repay remaining outstanding
indebtedness under the bank credit facility and facilitate in the renegotiation
or replacement of the facility.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 1999, the FASB issued Statement of Accounting Standards 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. 133 until our fiscal year ending September 30, 2001.
We have not completed our evaluation of the effects of SFAS No. 133.

In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements." The
SAB summarizes certain of the SEC's views in applying revenue recognition in
financial statements. The provisions of SAB No. 101 are effective for our fiscal
year beginning October 1, 2000. We have not yet completed our evaluation of the
effects of SAB No. 101.

EFFECT OF INFLATION

We believe that the effect of inflation has not been material during each
of the fiscal years ended September 30, 1999, 1998 and 1997, 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 this issue. We believe that we
have adequately addressed Year 2000 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
and vendors.

In order to assess Year 2000 compliance in our internal operating systems,
we first took an inventory of all such systems and identified those which were
critical to our operations. All such systems were tested for Year 2000
compliance by September 30, 1999. We believe that we brought all of our
non-compliant systems into compliance through repair, upgrading and/or
replacement, as we experienced no Year 2000 disruptions on or after January 1,
2000. However, due to the uncertainties that are inherent in Year 2000
remediation, we can give no assurances that our efforts will prevent future
business disruptions.

Although we believe that we have adequately addressed the Year 2000 issue,
having experienced no failures or disruptions in our internal operating systems
or our products or in those of our third party vendors or suppliers either on or
after January 1, 2000, it is possible that future failures or disruptions
stemming from Year 2000 issues may yet result in our ability to process
transactions, send invoices, accept customer orders or timely provide customers
with products and services.

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

29
<PAGE> 33

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 maintain reserves for potential credit losses and
historically 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 December 31, 1999, we had bank
borrowings outstanding of $35.3 million which had a variable interest rate and
long-term note payables of $4.8 million with fixed interest rates. Using a yield
to maturity analysis and assuming an increase in the interest rate on these
borrowings of 105 basis points (10% fluctuation in the rate), interest rate
variability on these borrowings would not have a material effect on our
financial results.

Approximately 73% of our international revenues for fiscal year 1999 were
derived from sales to Asia, which were denominated in U.S. dollars. However, we
are exposed to the impact of foreign currency fluctuations, primarily in our
sales to Europe. During fiscal year 1999, most local currencies of our European
subsidiaries weakened against the U.S. dollar. Since we translate foreign
currencies into U.S. dollars for reporting purposes, these weakened currencies
had a negative, though immaterial, impact on our results. We also believe that
our exposure to currency exchange fluctuation risk is insignificant because our
European subsidiaries sell to customers, and satisfy their financial
obligations, almost exclusively in their local currencies. During fiscal year
1999, 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.

30
<PAGE> 34

MANAGEMENT

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

<TABLE>
<CAPTION>
NAME AGE POSITION HELD
- ---- --- -------------
<S> <C> <C>
Pat V. Costa............................ 56 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......................... 49 Vice President
John S. O'Brien......................... 45 Vice President
Earl H. Rideout......................... 53 Senior Vice President
Neal H. Sanders......................... 50 Vice President
Frank A. DiPietro....................... 73 Director
Jay M. Haft............................. 64 Director
Tomas Kohn.............................. 58 Director
Donald J. Kramer........................ 67 Director
Mark J. Lerner.......................... 47 Director
Robert H. Walker........................ 65 Director
</TABLE>

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 a 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.

Neal H. Sanders joined us in February 1999 as corporate vice president of
corporate communications and investor relations and is vice president of
corporate development. 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 Corporation in 1944. During his forty-six year career
with General Motors, 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

31
<PAGE> 35

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 General
Motors. 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 NCT Group, Inc., a
publicly traded company. He is a managing general partner of GenAm "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 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.

Mark J. Lerner, a director since 1994, 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.

Robert H. Walker, a director since 1990, 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. Mr. Walker is also a director of
Tel Instrument Electronics Corporation, a publicly-owned company.

32
<PAGE> 36

SELLING SHAREHOLDER

In November 1999, we acquired Polaroid Corporation's interest in the MXi, a
hand-held imager that resulted from a joint development and marketing
arrangement with us. The consideration we paid, $2.0 million, was in the form of
a subordinated convertible note, bearing interest at 11% per year. Polaroid has
elected to convert this note and accrued interest into shares of our common
stock, at $8.00 per share, for sale in this offering. The following table sets
forth certain information with respect to Polaroid's ownership of shares of our
common stock at December 31, 1999.

<TABLE>
<CAPTION>
BEFORE GIVING EFFECT AFTER GIVING EFFECT
TO THIS OFFERING TO THIS OFFERING
--------------------------- ---------------------------
PERCENT OF NUMBER OF PERCENT OF
NUMBER OF COMMON SHARES OF NUMBER OF COMMON
SHARES OF STOCK COMMON STOCK SHARES OF STOCK
COMMON STOCK OUTSTANDING OFFERED COMMON STOCK OUTSTANDING
------------ ----------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
SELLING SHAREHOLDER:
Polaroid Corporation..... 250,000 0.9% 250,000(1) -- --
</TABLE>

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

(1) The actual number of shares offered by the selling shareholder will be
calculated as of the offering date.

33
<PAGE> 37

UNDERWRITING

Subject to the terms and conditions set forth in the underwriting agreement
dated as of February , 2000, the underwriters named below have severally
agreed to purchase, and we and the selling shareholder have agreed to sell to
them, the aggregate number of shares set forth opposite their respective names:

<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
- ------------ ----------------
<S> <C>
ING Barings LLC.............................................
Prudential Securities Incorporated..........................
McDonald Investments Inc....................................
Total.......................................................
</TABLE>

The underwriting agreement provides that the obligations of the
underwriters are subject to the approval of certain legal matters by counsel and
various other conditions. The nature of the underwriters' obligations is such
that they are committed to purchase all of the above shares if any are
purchased.

The underwriters propose to offer the shares in part directly to the public
at the public offering price set forth on the cover page of this prospectus and
in part to certain dealers at such price less a concession not in excess of
$ per share. The underwriters may allow, and such dealers may re-allow, a
concession not in excess of $ per share to certain other dealers. After the
offering, the offering price and other selling terms may be changed by the
underwriters.

The following table shows the fees to be paid to the underwriters by us and
the selling shareholder in connection with this offering. These amounts are
shown assuming both no exercise and full exercise of the underwriters' option to
purchase additional shares of common stock.

<TABLE>
<CAPTION>
TOTAL
----------------------------
WITH WITH
PER SHARE NO EXERCISE FULL EXERCISE
--------- ----------- -------------
<S> <C> <C> <C>
Underwriting discounts and commissions paid by us........ $ $ $
Underwriting discounts and commissions paid by the
selling shareholder...................................... $ $ $
</TABLE>

Other expenses of this offering to be paid by us are expected to be
approximately $700,000.

We have granted the underwriters an option exercisable for 30 days after
the date of this prospectus to purchase up to an aggregate of 750,000 additional
shares of common stock to cover over-allotments, if any. If the underwriters
exercise the over-allotment option, the underwriters have severally agreed,
subject to certain conditions, to purchase approximately the same percentage
thereof that the number of shares to be purchased by each of them, as shown in
the foregoing table, bears to the shares of common stock offered.

In connection with this offering, certain underwriters may engage in
passive market making transactions in the common stock on the Nasdaq National
Market immediately prior to the commencement of sales in this offering in
accordance with Rule 103 of Regulation M. Passive market making consists of
displaying bids on the Nasdaq National Market limited by the bid prices of
independent market makers and making purchases limited by such prices and
effected in response to order flow. Net purchases by a passive market maker on
each day are limited to a specified percentage of the passive market maker's
average daily trading volume in the common stock during a specified period and
must be discontinued when such limit is reached. Passive market making may
stabilize the market price of the common stock at a level above that which might
otherwise prevail and, if commenced, may be discontinued at any time.

Certain persons participating in the offering may over-allot or effect
transactions which stabilize, maintain or otherwise affect the market price of
the shares of common stock at levels above those

34
<PAGE> 38

which might otherwise prevail in the open market, including by entering
stabilizing bids or effecting syndicate covering transactions. A stabilizing bid
means the placing of any bid or the effecting of any purchase, for the purpose
of pegging, fixing or maintaining the price of the shares of common stock. A
syndicate covering transaction means the placing of any bid on behalf of the
underwriting syndicate or the effecting of any purchase to reduce a short
position created in connection with the offering. Such transactions may be
effected on the Nasdaq National Market, in the over-the-counter market, or
otherwise. Such stabilizing, if commenced, may be discontinued at any time.

The holders of certain warrants representing approximately 7.2 million
shares of our common stock have entered into a lock-up agreement with ING
Barings LLC, as representative of the underwriters, limiting sales by the
holders of shares issuable upon exercise of those warrants. The holders have
agreed that, for a 120-day period after the date of the execution of the
underwriting agreement, they will not, without the permission of ING Barings,
sell more than 25% of the shares of common stock issuable upon exercise of such
warrants, except that this restriction on sale will not apply on any trading day
that immediately follows a period of five consecutive trading days during which
the daily closing price of such shares on the Nasdaq National Market is either
three dollars more per share or three dollars less per share than the public
offering price set forth on the cover page of this prospectus. In addition, this
lock-up agreement does not apply to shares purchased in open market transactions
and will not prohibit the holding of shares in a margin account or the extension
of existing swap or other derivative transactions.

We and the selling shareholder have agreed that, for 180 days following the
date of this prospectus, we and the selling shareholder will not, without the
prior written consent of ING Barings, directly or indirectly, offer for sale,
sell, contract to sell, or grant any option to purchase or otherwise dispose of
any shares of common stock, except that we may grant options under our stock
option plan, issue shares of common stock pursuant to the exercise of
outstanding options and warrants and issue shares of common stock (or options or
other rights to purchase shares of common stock) in connection with any
acquisitions we may complete during such 180 day period.

We and the selling shareholder have agreed to indemnify the underwriters
against certain liabilities, including under the Securities Act of 1933, or to
contribute to payments that the underwriters may be required to make in respect
thereof.

Our common stock is listed for trading on the Nasdaq National Market under
the symbol "ROBV."

LEGAL MATTERS

The validity of the common stock offered hereby will be passed upon for us
by Cooperman Levitt Winikoff Lester & Newman, P.C., New York, New York. Certain
legal matters relating to this offering will be passed upon for the underwriters
by Clifford Chance Rogers & Wells LLP, New York, New York.

EXPERTS

The consolidated financial statements and the related financial statement
schedule of Robotic Vision Systems, Inc. and subsidiaries as of September 30,
1999 and 1998, and for each of the three years in the period ended September 30,
1999, included and incorporated by reference in this prospectus have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
reports which are included and incorporated by reference herein, and have been
so included in reliance upon the reports of such firm given upon their authority
as experts in accounting and auditing.

35
<PAGE> 39

WHERE YOU CAN FIND MORE INFORMATION

We have filed a registration statement on Form S-3 with the Securities and
Exchange Commission relating to the common stock offered hereby. This prospectus
does not contain all of the information set forth in the registration statement
and the exhibits and schedules to the registration statement. Statements
contained in this prospectus as to the contents of any contract or other
document referred to are not necessarily complete and in each instance we refer
you to the copy of the contract or other document filed as an exhibit to the
registration statement, each such statement being qualified in all respects by
such reference.

For further information with respect to Robotic Vision Systems, Inc. and
the common stock offered by this prospectus, we refer you to the registration
statement, exhibits and schedules. A copy of the registration statement may be
inspected by anyone without charge at the public reference facilities maintained
by the SEC in Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549; the
Chicago Regional Office, Suite 1400, 500 West Madison Street, Citicorp Center,
Chicago, Illinois 60661; and the New York Regional Office, Suite 1300, 7 World
Trade Center, New York, New York 10048. Copies of all or any part of the
registration statement may be obtained from the Public Reference Section of the
SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, upon payment of the
prescribed fees. The public may obtain information on the operation of the
Public Reference Room by calling the SEC at 1-800-SEC-0330. The registration
statement is also available through the SEC's Web site at the following address:
http://www.sec.gov.

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The SEC allows us to incorporate by reference the information we file with
it, which means that we can disclose important information to you by referring
you to those documents. The information incorporated by reference is considered
to be part of this prospectus and information we file later with the SEC will
automatically update and supersede this information. We incorporate by reference
the documents listed below and any future filings made by us with the SEC under
Sections 13(a), 13(c), 14, or 15(d) of the Securities Exchange Act of 1934 until
the sale of all of the shares of common stock that are part of this offering.
The documents we are incorporating by reference are as follows:

- our Annual Report on Form 10-K and 10-K/A for the year ended September
30, 1999;

- our Quarterly Report on Form 10-Q for the quarter ended December 31,
1999; and

- the description of our common stock contained in our registration
statement on Form 8-A (Registration No. 0-8623) and in our Current Report
on Form 8-K dated May 20, 1998, including any amendments or reports filed
for the purpose of updating that description.

Any statement contained in a document that is incorporated by reference
will be modified or superseded for all purposes to the extent that a statement
contained in this prospectus (or in any other document that is subsequently
filed with the SEC and incorporated by reference) modifies or is contrary to
that previous statement. Any statement so modified or superseded will not be
deemed a part of this prospectus except as so modified or superceded.

You may request a copy of these filings at no cost by writing or
telephoning our investor relations department at the following address and
number:

Robotic Vision Systems, Inc.
5 Shawmut Road
Canton, Massachusetts 02021
(781) 821-0830

36
<PAGE> 40

ROBOTIC VISION SYSTEMS, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report................................ F-2
Consolidated Balance Sheets at September 30, 1999 and
September 30, 1998.......................................... F-3
Consolidated Statements of Operations for the Years Ended
September 30, 1999, 1998 and 1997......................... F-4
Consolidated Statements of Stockholders' Equity for the
Years Ended September 30, 1999, 1998 and 1997............. F-5
Consolidated Statements of Comprehensive Income (Loss) for
the Years Ended September 30, 1999, 1998 and 1997......... F-6
Consolidated Statements of Cash Flows for the Years Ended
September 30, 1999, 1998 and 1997......................... F-7
Notes to Consolidated Financial Statements.................. F-8
Financial Statement Schedule II -- Valuation and Qualifying
Accounts and Reserves..................................... F-28
Unaudited Consolidated Balance Sheets at December 31, 1999
and September 30, 1999.................................... F-29
Unaudited Consolidated Statement of Operations for the Three
Months Ended December 31, 1999 and 1998................... F-30
Unaudited Consolidated Statements of Cash Flows for the
Three Months Ended December 31, 1999 and 1998............. F-31
Notes to Unaudited Consolidated Financial Statements........ F-32
</TABLE>

F-1
<PAGE> 41

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders of
Robotic Vision Systems, Inc.
Canton, MA

We have audited the accompanying consolidated balance sheets of Robotic
Vision Systems, Inc. and subsidiaries (the "Company") as of September 30, 1999
and 1998, and the related consolidated statements of operations, comprehensive
income (loss), stockholders' equity, and cash flows for each of the three years
in the period ended September 30, 1999. Our audits also included the financial
statement schedule listed in the Index on 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 the 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 Robotic Vision Systems, Inc.
and subsidiaries at September 30, 1999 and 1998, and the results of their
operations, and their cash flows for each of the three years in the period ended
September 30, 1999 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,
present fairly in all material respects the information set forth therein.

/s/ DELOITTE & TOUCHE LLP

Boston, Massachusetts
December 27, 1999

F-2
<PAGE> 42

ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1999 AND 1998
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 6,293 $ 2,421
Accounts receivable, net.................................. 37,502 32,367
Inventories............................................... 32,553 36,213
Prepaid expenses and other current assets................. 1,288 1,226
--------- ---------
Total current assets.............................. 77,636 72,227
Plant and equipment, net.................................. 12,281 17,591
Deferred income taxes..................................... 8,820 8,820
Goodwill, net of accumulated amortization of $1,434 and
$840................................................... 5,250 5,847
Software development costs, net........................... 13,965 11,812
Other assets.............................................. 5,249 5,274
--------- ---------
$ 123,201 $ 121,571
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable and current portion of long-term debt....... $ 35,627 $ 38,038
Accounts payable.......................................... 21,093 21,388
Accrued expenses and other current liabilities............ 16,531 22,289
--------- ---------
Total current liabilities......................... 73,251 81,715
Long-term debt............................................ 2,855 3,059
--------- ---------
Total liabilities................................. 76,106 84,774
Commitments and contingencies (Note 10)...................
Prepaid warrants.......................................... 9,105 --
Stockholders' Equity:
Common stock, $0.01 par value; shares authorized
1999 -- 75,000 shares and 1998 -- 50,000; issued and
outstanding 1999 -- 27,354 and 1998 -- 24,870.......... 274 249
Additional paid-in capital................................ 179,466 168,493
Accumulated deficit....................................... (141,683) (131,962)
Accumulated other comprehensive income.................... (67) 17
--------- ---------
Total stockholders' equity........................ 37,990 36,797
--------- ---------
$ 123,201 $ 121,571
========= =========
</TABLE>

See notes to consolidated financial statements
F-3
<PAGE> 43

ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30, 1999, 1998 AND 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Revenues.................................................. $128,230 $169,007 $169,342
Cost of revenues.......................................... 71,526 113,005 93,847
-------- -------- --------
Gross profit.............................................. 56,704 56,002 75,495
-------- -------- --------
Operating costs and expenses:
Research and development expenses......................... 20,533 28,121 25,465
Selling, general and administrative expenses.............. 44,599 58,877 48,259
Merger expenses........................................... -- 623 69
Severance and other charges............................... 255 6,615 --
-------- -------- --------
Income (loss) from operations............................. (8,683) (38,234) 1,702
Gain on sale of assets.................................... (2,985) -- --
Interest expense.......................................... 3,959 2,363 1,076
Interest income........................................... (399) (92) (767)
-------- -------- --------
Income (loss) before income taxes......................... (9,258) (40,505) 1,393
Provision (benefit) for income taxes...................... -- -- 745
-------- -------- --------
Net income (loss)......................................... (9,258) (40,505) 648
Premium on prepaid warrants............................... 463 -- --
-------- -------- --------
Net income (loss) attributable to common stockholders..... $ (9,721) $(40,505) $ 648
======== ======== ========
Net income (loss) per share:
Basic................................................... $ (0.38) $ (1.65) $ 0.03
Diluted................................................. $ (0.38) $ (1.65) $ 0.03
Weighted Average shares:
Basic................................................... 25,669 24,613 23,718
Diluted................................................. 25,669 24,613 23,967
</TABLE>

See notes to consolidated financial statements
F-4
<PAGE> 44

ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1999, 1998 AND 1997
(IN THOUSANDS)

<TABLE>
<CAPTION>
COMMON STOCK
------------------ ACCUMULATED
NUMBER ADDITIONAL UNREALIZED OTHER TOTAL
OF PAID-IN ACCUMULATED GAIN ON COMPREHENSIVE STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT INVESTMENTS INCOME EQUITY
--------- ------ ---------- ----------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, OCTOBER 1, 1996......... 23,332 $233 $157,607 $ (94,549) $ 147 $ 175 $ 63,613
Shares issued in connection with
the exercise of stock options
and warrants.................... 384 4 1,839 -- -- -- 1,843
Other stock transactions......... (104) (1) (488) -- -- -- (489)
Shares issued in connection with
private placement, net of
offering costs.................. 826 8 7,665 -- -- -- 7,673
Change in year end of pooled
companies....................... -- -- -- 2,444 -- -- 2,444
Change in net unrealized holding
gains........................... -- -- -- -- (147) -- (147)
Translation adjustment........... -- -- -- -- -- (8) (8)
Net income....................... -- -- -- 648 -- -- 648
------ ---- -------- --------- ----- ----- --------
BALANCE, SEPTEMBER 30, 1997...... 24,438 244 166,623 (91,457) -- 167 75,577
Shares issued in connection with
the exercise of stock options
and warrants.................... 161 2 373 -- -- -- 375
Shares issued in connection with
license agreement and non-
competition agreement........... 271 3 1,497 -- -- -- 1,500
Translation adjustment........... -- -- -- -- -- (150) (150)
Net loss......................... -- -- -- (40,505) -- -- (40,505)
------ ---- -------- --------- ----- ----- --------
BALANCE, SEPTEMBER 30, 1998...... 24,870 249 168,493 (131,962) -- 17 36,797
Shares issued in conjunction with
the exercise of stock options
and warrants.................... 111 1 168 -- -- -- 169
Shares issued in connection with
private placement, net of
offering costs.................. 2,373 24 5,807 -- -- -- 5,831
Warrants issued in connection
with private placement, net of
offering costs.................. -- -- 4,898 -- -- -- 4,898
Warrants issued for professional
services........................ -- -- 100 -- -- -- 100
Amortization of warrant
premium......................... -- -- -- (463) -- -- (463)
Translation adjustment........... -- -- -- -- -- (84) (84)
Net loss......................... -- -- -- (9,258) -- -- (9,258)
------ ---- -------- --------- ----- ----- --------
BALANCE, SEPTEMBER 30, 1999...... 27,354 $274 $179,466 $(141,683) $ -- $ (67) $ 37,990
====== ==== ======== ========= ===== ===== ========
</TABLE>

See notes to consolidated financial statements
F-5
<PAGE> 45

ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
FOR THE YEARS ENDED SEPTEMBER 30, 1999, 1998 AND 1997
(IN THOUSANDS)

<TABLE>
<CAPTION>
1999 1998 1997
------- -------- ----
<S> <C> <C> <C>
Net income (loss)........................................... $(9,258) $(40,505) $648
Foreign currency translation adjustment..................... (84) (150) (8)
------- -------- ----
Comprehensive net income (loss)............................. $(9,342) $(40,655) $640
======= ======== ====
</TABLE>

See notes to consolidated financial statements
F-6
<PAGE> 46

ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 1999, 1998 AND 1997
(IN THOUSANDS)

<TABLE>
<CAPTION>
1999 1998 1997
------- -------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)........................................... $(9,721) $(40,505) $ 648
Adjustments to reconcile net income (loss) to net cash used
in operating activities:
Deferred income taxes..................................... -- -- (93)
Depreciation and amortization............................. 10,771 8,769 5,895
Gain on sale of assets.................................... (2,985) -- (812)
Other..................................................... -- (164) (218)
Changes in operating assets and liabilities (net of
effects of business acquired):
Accounts receivable..................................... (5,135) 18,196 (20,084)
Inventories............................................. 3,660 2,882 (14,093)
Prepaid expense and other current assets................ (62) 203 (514)
Other assets............................................ (57) 373 31
Accounts payable........................................ (295) (1,932) 10,709
Accrued expenses and other current liabilities.......... (5,758) 850 4,722
Other liabilities....................................... -- -- (82)
------- -------- --------
Net cash used in operating activities................... (9,582) (11,328) (13,891)
------- -------- --------
INVESTING ACTIVITIES:
Proceeds from maturity of investments....................... -- -- 2,319
Additions to plant and equipment, net....................... (2,885) (9,137) (7,915)
Additions to software development costs..................... (4,927) (7,397) (4,842)
Proceeds from sale of assets................................ 4,229 -- 952
Payment for purchase of business............................ -- -- (3,144)
------- -------- --------
Net cash used in investing activities................... (3,583) (16,534) (12,630)
------- -------- --------
FINANCING ACTIVITIES:
Proceeds from the issuance of common stock and
warrants -- private equity placement (less offering
costs).................................................... 19,372 -- 7,673
Proceeds from the exercise of stock options and warrants.... 168 375 1,271
Purchase of treasury stock.................................. -- -- (650)
Net proceeds from (payments of) short-term borrowings....... (2,411) 28,911 (2,833)
Proceeds from long-term borrowings.......................... -- -- 8,000
Repayment of long-term borrowings........................... (204) (7,828) (1,864)
------- -------- --------
Net cash provided by financing activities............... 16,925 21,458 11,597
------- -------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH
EQUIVALENTS............................................... 112 14 189
------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 3,872 (6,390) (14,735)
CASH AND CASH EQUIVALENTS:
Beginning of year......................................... 2,421 8,811 23,546
------- -------- --------
End of year............................................... $ 6,293 $ 2,421 $ 8,811
======= ======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid............................................... $ 2,937 $ 2,311 $ 1,027
======= ======== ========
Taxes paid.................................................. $ -- $ 244 $ 218
======= ======== ========
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
======= ======== ========
Liabilities incurred in connection with acquisition of
business.................................................. -- -- $ 902
======= ======== ========
Property and equipment acquired under capital leases........ -- -- $ 22
======= ======== ========
</TABLE>

See notes to consolidated financial statements
F-7
<PAGE> 47

ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 1999, 1998 AND 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

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 net losses of $9.3 million and $40.5 million for the
fiscal years ended September 30, 1999 and 1998, respectively, primarily
attributable to the worldwide downturn in demand for semiconductor capital
equipment which began in March 1998 and continued through the first half of
calendar 1999. Primarily during fiscal 1998, management took a series of steps
to reduce expenses and restructure operations in response to this downturn.

At September 30, 1999, the Company owed $35.3 million to its bank lenders.
The indebtedness is collateralized by substantially all of the Company's assets.
The Company has not been in compliance with certain of the financial covenants
contained in the agreement with the banks. This has required the Company to
periodically request waivers of these covenants or amendments of the agreement.
In March 1999, the agreement was amended to conform the financial covenants to
the Company's operating plans. Through September 30, 1999, the Company was in
compliance with the revised covenants. The bank agreement expires on March 17,
2000 and the Company must either repay or replace this indebtedness or negotiate
an extension of the agreement.

Management is continuing to control expenses, inventory levels and capital
expenditures and is pursuing a number of new debt and/or equity financing
alternatives. Management believes that through a combination of new financings
and/or extension of the existing loan agreement, the Company will have
sufficient liquidity at least through September 30, 2000 to fund its cash
requirements.

C. PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the financial statements of
RVSI and its subsidiaries, all of which are wholly-owned. All significant
intercompany transactions and balances have been eliminated 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 Corporation in fiscal 1996) are recorded as adjustments to accumulated
deficit.

D. REVENUES AND COST OF REVENUES

The Company recognizes revenue upon shipment. 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.

F-8
<PAGE> 48
ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

1. BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
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 Statement of
Financial Accounting Standards ("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.
Certain software development costs totaling $4,927, $7,397 and $4,842 have been
capitalized during the fiscal years ended September 30, 1999, 1998 and 1997
respectively. Amortization expense relating to software development costs for
the fiscal years ended September 30, 1999, 1998, and 1997 was $2,775, $2,072,
and $962, respectively.

F-9
<PAGE> 49
ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

1. BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
J. RESEARCH AND DEVELOPMENT COSTS

The Company charges research and development costs for Company-funded
projects to operations as incurred.

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 $(163), $106 and $(267) in 1999, 1998 and
1997, respectively.

M. NET INCOME (LOSS) PER COMMON SHARE

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 and
warrants (using the treasury stock method), except where such options would be
anti-dilutive.

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.

d) Prepaid warrant -- At September 30, 1999, the value of the shares into
which the prepaid warrant was exercisable was $12,311.

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

F-10
<PAGE> 50
ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

1. BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
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.

P. RECLASSIFICATIONS

Certain amounts in the 1997 and 1998 financial statements have been
reclassified to conform with the 1999 presentation.

Q. RECENT ACCOUNTING PRONOUNCEMENTS

In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" as amended, and is effective for the Company
in the first quarter of fiscal year 2001. SFAS No. 133 establishes accounting
and reporting standards for derivative instruments, including derivative
instruments embedded in other contracts, and for hedging activities. The Company
is evaluating the effects of adoption of SFAS No. 133 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 shares of the
Company's common stock, having a market value at the date of the merger of
approximately $45,776. Outstanding Vanguard stock options were converted into
stock options to purchase approximately 152 shares of the Company's common
stock. Outstanding Vanguard warrants were converted into warrants to purchase
approximately 182 shares of the Company's common stock. Vanguard produces and
markets automated manufacturing 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, relating
primarily to investment banking, legal and accounting fees, were incurred
relating to this merger and charged to expense in fiscal 1998.

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

<TABLE>
<CAPTION>
AS PREVIOUSLY
REPORTED VANGUARD ELIMINATION COMBINED
------------- -------- ----------- --------
<S> <C> <C> <C> <C>
Revenues............................. $152,103 $18,218 $(979) $169,342
Net income (loss).................... 8,245 (7,511) (86) 648
Net income per share -- diluted...... 0.38 0.03
</TABLE>

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

F-11
<PAGE> 51
ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

2. ACQUISITIONS -- (CONTINUED)
products for the semiconductor industry. The purchase price was $3,000 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 is being amortized
over 15 years. The historical results of operations of Trigon were not material
to the operations of the Company.

C. SYSTEMATION ENGINEERED PRODUCTS, INC.

On October 1, 1996, the Company acquired the outstanding shares of
Systemation Engineered Products, Inc. ("Systemation") for 1,740 shares of the
Company's common stock, having a market value at the date of the merger of
approximately $22,838. Systemation designs manufactures, markets and sells
specialized high speed production machinery for the electronics component
industry. Systemation'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. Expenses of $904 were incurred related to this
merger were included in the Consolidated Statement of Operations for fiscal
1997.

3. ACCOUNTS RECEIVABLE

Accounts receivable at September 30, 1999 and 1998 consisted of the
following:

<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Total accounts receivable................................... $38,394 $33,367
Less allowance for doubtful accounts receivable............. (892) (1,000)
------- -------
Accounts receivables, net................................... $37,502 $32,367
======= =======
</TABLE>

As of September 30, 1999 and 1998, the Company had $1,053 and $2,444
respectively, of unbilled receivables primarily relating 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. All
unbilled receivables owed to the Company as of September 30, 1998 have been
collected. The Company believes that all of its unbilled receivables at
September 30, 1999 will be billed and collected during the next twelve months.

F-12
<PAGE> 52
ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

4. INVENTORIES

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

<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Raw materials............................................... $16,817 $17,124
Work in process............................................. 7,360 10,429
Finished goods.............................................. 8,376 8,660
------- -------
Total.................................................. $32,553 $36,213
======= =======
</TABLE>

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 reduced the carrying value of inventories to
their appropriate net realizable value. These amounts have been recorded in 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. Substantially all of the
older generation products were sold or disposed of in fiscal 1999.

5. INCOME TAXES

The components of income (loss) before income tax provision (benefit), for
the fiscal years ended September 30, 1999, 1998 and 1997 are as follows:

<TABLE>
<CAPTION>
1999 1998 1997
------- -------- ------
<S> <C> <C> <C>
Domestic............................................. $(7,496) $(36,758) $2,114
Foreign.............................................. (1,762) (3,747) $ (721)
------- -------- ------
Total........................................... $(9,258) $(40,505) $1,393
======= ======== ======
</TABLE>

F-13
<PAGE> 53
ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

5. INCOME TAXES -- (CONTINUED)
The income tax provision (benefit) for the fiscal years ended September 30,
1999, 1998 and 1997 consisted of the following:

<TABLE>
<CAPTION>
1999 1998 1997
------- -------- -------
<S> <C> <C> <C>
Current:
Federal........................................... $ -- $ -- $ 737
State............................................. -- -- 110
Foreign........................................... -- -- (9)
------- -------- -------
-- -- 838
------- -------- -------
Deferred:
Federal........................................... (4,042) (18,044) 1,187
State............................................. (476) (2,140) 246
Change in valuation allowance..................... 4,518 20,184 (1,526)
------- -------- -------
-- -- (93)
------- -------- -------
Total.......................................... $ -- $ -- $ 745
======= ======== =======
</TABLE>

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.

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, 1999, 1998
and 1997 is as follows:

<TABLE>
<CAPTION>
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
U.S. Federal statutory rate............................. (34.0)% (34.0)% 34.0%
Increases (reductions) due to:
State taxes -- net of Federal tax benefit............... (4.0) (4.0) 13.7
Anticipated future utilization of net operating loss
carryforwards......................................... -- -- (88.9)
Net operating loss not producing current tax benefits... 34.0 34.6 203.5
Exempt income of foreign sales corporation.............. -- -- (55.1)
Worthless stock deduction relating to liquidation of
foreign subsidiaries.................................. -- -- (55.1)
Other -- net............................................ 4.0 3.4 1.4
----- ----- -----
Total.............................................. 0.0% 0.0% 53.5%
===== ===== =====
</TABLE>

The net deferred tax asset at September 30, 1999, 1998 and 1997 is
comprised of the following:

<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
DEFERRED TAX ASSETS (LIABILITIES):
Net operating loss carryforwards.................. $ 37,632 $ 27,257 $ 17,021
Tax credit carryforwards.......................... 2,109 2,315 2,655
Accrued liabilities............................... 1,257 2,754 2,277
Inventories....................................... 3,325 6,899 2,427
Receivables....................................... 372 418 1,078
</TABLE>

F-14
<PAGE> 54
ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

5. INCOME TAXES -- (CONTINUED)

<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Property and equipment............................ 885 361 (129)
Merger expenses................................... -- 329 271
Software development costs........................ (4,293) (3,538) (2,043)
Other............................................. 30 4 176
-------- -------- --------
41,317 36,799 23,733
Less valuation allowance........................ (32,497) (27,979) (14,913)
-------- -------- --------
Total........................................ $ 8,820 $ 8,820 $ 8,820
======== ======== ========
</TABLE>

As of September 30, 1999, the Company had U.S. Federal net operating loss
carryforwards of approximately $95,327 of which $29,972 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 2000 through
2014. The utilization of the 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 1999 relates primarily to the fiscal 1999 operating loss.

6. PLANT AND EQUIPMENT

Plant and equipment at September 30, 1999 and 1998 consisted of the
following:

<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Land........................................................ $ -- $ 490
Machinery and equipment..................................... 12,584 10,475
Furniture, fixtures and other equipment..................... 13,043 13,163
Demonstration equipment..................................... 4,880 7,531
Leasehold improvements...................................... 2,595 2,492
-------- --------
Total.................................................. 33,102 34,151
Less accumulated depreciation and amortization.............. (20,821) (16,560)
-------- --------
Plant and equipment -- net................................ $ 12,281 $ 17,591
======== ========
</TABLE>

F-15
<PAGE> 55
ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

7. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities at September 30, 1999 and
1998 consisted of the following:

<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Accrued wages and related employee benefits................. $ 4,285 $ 5,948
Accrued sales commissions................................... 3,538 5,468
Advance contract payments received.......................... 2,705 1,216
Accrued warranty and other product related costs............ 1,448 2,826
Accrued severance and other charges......................... 255 2,099
Other....................................................... 4,300 4,732
------- -------
Total.................................................. $16,531 $22,289
======= =======
</TABLE>

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. As a result of these steps, the
Company recorded a total of $6.6 million in charges in fiscal 1998.

The Company terminated approximately 350 employees at a cost of $3.8
million. Of the $3.8 million, approximately $2.4 million was paid in cash to
employees prior to September 30, 1998. An additional $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.

The components of the severance and other charges, related fiscal 1998
expenditures and remaining liability at September 30, 1999 are detailed below:

<TABLE>
<CAPTION>
ACCRUED ACCRUED
SEPTEMBER 30, CASH SEPTEMBER 30,
1998 EXPENDITURES 1999
------------- ------------ -------------
<S> <C> <C> <C>
Severance payments to employees........... $1,384 $1,384 $ --
Costs for changes in Asia distributors.... 500 245 255
Costs to consolidate Acuity CiMatrix
operations.............................. 215 215 --
------ ------ ----
Total................................ $2,099 $1,844 $255
====== ====== ====
</TABLE>

F-16
<PAGE> 56
ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

7. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES -- (CONTINUED)
The Company expects that the remaining balance at September 30, 1999 will
be paid in cash during fiscal 2000. Severance and other charges were $0.3
million for the year ended September 30, 1999. These charges relate to
reductions in personnel, particularly in Europe. The 1999 severance and other
charges were paid out in fiscal 1999, no amount were accrued as of September 30,
1999.

8. NOTES PAYABLE AND LONG-TERM DEBT

Notes payable and long-term debt at September 30, 1999 and 1998 consisted
of the following:

<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Lines of credit with domestic banks(a)...................... $ 35,325 $ 37,500
Subordinated note payable(b)................................ 2,250 2,250
Other borrowings............................................ 907 1,347
-------- --------
Total notes payable and long-term debt................. 38,482 41,097
Less notes payable and current portion of long-term debt.... (35,627) (38,038)
-------- --------
Long-term debt.............................................. $ 2,855 $ 3,059
======== ========
</TABLE>

- -------------------------
a. In March 1998, the Company entered into a $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. In the third
quarter of fiscal 1999, the agreement was amended to waive compliance
with certain financial covenants of the agreement through March 31, 1999
and establish new financial covenants for the balance of the term of the
agreement. The amended agreements expires on March 17, 2000 and
borrowings under the agreement bears interest at prime rate plus 2% or
10.25% as of September 30, 1999. Borrowings are collateralized by
substantially all of the domestic tangible and intangible assets of the
Company. The amended agreement, among other things, contains certain
financial covenants, including minimum levels of profitability, liquidity
and net worth, with which the Company was in compliance at September 30,
1999. Borrowings under the agreement at September 30, 1999, have been
classified as current. Average borrowings during fiscal 1999 were
$36,420. The average interest rate on borrowings was approximately 10.0%
during fiscal 1999. The Company is working to replace the revolving
credit agreement.

b. The subordinated note matures in June 2003, bears interest at prime
(8.25% at September 30, 1999) and is payable in equal quarterly
installments of $281 commencing September 12, 2001.

9. EMPLOYEE BENEFIT PLANS

DEFINED BENEFIT PLAN -- The Company has a noncontributory pension plan for
certain employees hired prior to September 1996, and 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 mutual
funds, 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.

F-17
<PAGE> 57
ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

9. EMPLOYEE BENEFIT PLANS -- (CONTINUED)
The components of net pension cost for the fiscal years ended September 30,
1999, 1998 and 1997 are summarized as follows:

<TABLE>
<CAPTION>
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
Service cost -- benefits earned during the period......... $ 257 $ 286 $ 272
Interest on projected benefit obligations................. 164 164 135
Estimated return on plan assets........................... (128) (167) (117)
Other -- amortization of actuarial gains and net
transition asset........................................ 23 (12) (15)
----- ----- -----
Net pension cost.......................................... $ 316 $ 271 $ 275
===== ===== =====
</TABLE>

The funded status of the plan compared with the accrued expense included in
the Company's consolidated balance sheet at September 30, 1999 and 1998 is as
follows:

<TABLE>
<CAPTION>
1999 1998
------ ------
<S> <C> <C>
Reconciliation of benefit obligation
Obligation at October 1................................... $2,157 $2,186
Service cost.............................................. 257 286
Interest cost............................................. 164 164
Plan amendment............................................ 68 0
Actuarial (gain) loss..................................... 55 279
Benefit payments.......................................... (535) (27)
Curtailments.............................................. -- (33)
Settlements............................................... -- (698)
------ ------
Obligation at September 30................................ $2,166 $2,157
====== ======
Reconciliation of fair value of plan assets
Fair value of plan assets at October 1.................... $1,548 $1,861
Actual return on plan assets.............................. 199 153
Employer contributions.................................... 42 259
Benefit payments.......................................... (535) (27)
Settlements............................................... 0 (698)
------ ------
Fair value of plan assets at September 30................. $1,254 $1,548
====== ======
Funded status
Funded status at September 30............................. (912) (609)
Unrecognized transition (assets) obligation............... 0 0
Unrecognized prior service cost........................... 73 14
Unrecognized (gain) loss.................................. 277 307
------ ------
Net amount recognized, before additional minimum
liability.............................................. $ (562) $ (288)
====== ======
</TABLE>

F-18
<PAGE> 58
ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

9. EMPLOYEE BENEFIT PLANS -- (CONTINUED)
Significant assumptions used in determining net periodic pension cost and
related pension obligations are as follows:

<TABLE>
<CAPTION>
1999 1998
----- -----
<S> <C> <C>
Discount rate............................................... 7.25% 7.25%
Rate of compensation increase............................... 4.00% 4.00%
Expected long-term rate of return on assets................. 8.25% 8.25%
</TABLE>

DEFINED CONTRIBUTION PLANS -- 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 $645, $747
and $604 for matching employer contributions to the Plans in 1999, 1998 and
1997, respectively.

10. 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:

<TABLE>
<CAPTION>
FISCAL YEAR ENDING SEPTEMBER 30: FACILITIES EQUIPMENT TOTAL
-------------------------------- ---------- --------- -------
<S> <C> <C> <C>
2000............................................... $ 2,886 $367 $ 3,253
2001............................................... 1,894 263 2,157
2002............................................... 1,403 67 1,470
2003............................................... 1,210 4 1,214
2004............................................... 818 3 821
Thereafter......................................... 7,613 -- 7,613
------- ---- -------
Total......................................... $15,824 $704 $16,528
======= ==== =======
</TABLE>

Rent expense for the fiscal years ended September 30, 1999, 1998 and 1997
was $3,400, $3,305 and $3,015, respectively.

F-19
<PAGE> 59
ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

10. COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
LITIGATION -- In June 1998, RVSI and General Scanning Inc, now known as GSI
Lumonics, Inc. ("GSI"), executed a settlement agreement of RVSI's claims arising
out of GSI's acquisition of View Engineering, Inc. ("View"). In August 1996,
RVSI claimed that GSI used improperly obtained information 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 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 GSI $3.75 million, of which $1.50
million represented approximately 271 shares of the Company's common stock and
$2.25 million in a subordinated note payable with a maturity date of five years.

The Company, as plaintiff, was a party to two actions in the United States
District Court for the Central District of California against View, 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, in which GSI was
also a defendant, involving the "in-tray" inspection of semiconductor packages
came to trial in November 1999 and is awaiting decision.

The Company is 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.

11. STOCKHOLDERS' EQUITY

WARRANTS OUTSTANDING -- As of September 30, 1999, there were warrants
outstanding to purchase approximately 9,078 shares of the Company's common stock
as described below:

<TABLE>
<CAPTION>
PROCEEDS
ON
DATE ISSUED QUANTITY EXERCISE EXPIRATION DATE
- ----------- -------- ----------- ----------------------------
<S> <C> <C> <C>
COMMON STOCK PURCHASE WARRANTS
December 1999--September
a. December 1993--September 1998........... 284 $ 2,852 2002
b. February 1999........................... 1,247 4,938 February 2004
c. April 1999.............................. 750 2,970 April 2004
d. April 1999.............................. 327 1,297 April 2004
e. July 1999............................... 3,091 12,425 July 2004
f. July 1999............................... 150 750 July 2004
----- -------
5,849 $25,232
=======
<CAPTION>
PREPAID WARRANTS
- ----------------
<S> <C> <C> <C>
b. February 1999........................... 3,229 February 2004
-----
9,078
=====
</TABLE>

- -------------------------
a. Warrants issued in various transactions having an exercise price of between
$2.57 and $24.43.

b. The Company issued in February 23, 1999 private placement of its equity,
prepaid common stock purchase warrants and common stock purchase warrants.
See "Prepaid and incentive warrants" for more details.

F-20
<PAGE> 60
ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

11. STOCKHOLDERS' EQUITY -- (CONTINUED)

c. During the third quarter of fiscal 1999, the Company amended the credit
agreement with its banks and issued warrants to its lending banks covering
750 shares, at an exercise price of $3.96 per share, of which 250 warrants
are immediately exercisable. All, or a portion, of the remaining 500
warrants are only exercisable if the lending banks extend the credit
agreement beyond the original maturity date for pre-determined periods.
Using a Black-Scholes valuation model the Company valued the warrants at
approximately $600 which will be charged to income pro-rata over the term
of the credit agreement with respect to the 250 shares immediately
exercisable and over the extension, if any, with respect to the remaining
500 shares.

d. In April 1999, in conjunction with the sale of common stock, the Company
issued 5-year incentive warrants for approximately 327 shares of the
Company's common stock at an exercise price of $3.96 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.

e. In July 1999, the Company sold warrants to purchase approximately 3,090
shares of the Company's common stock at an exercise price of $4.02 per
share for proceeds of $4,250, in a private placement.

f. Warrants issued to placement agent in connection with the sale of warrants
and common stock.

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 and 5-year incentive common stock purchase warrants ("incentive
warrants") to purchase approximately 592 shares of the Company's common stock
upon payment of an exercise price of $3.96 per share. These securities were sold
to four institutional investors. At the closing, the Company received gross
proceeds of $11,000 from the issuance of the prepaid warrants and incentive
warrants, and net proceeds of $9,763 after placement agent fees and other
expenses of the transaction. The Company also issued to the placement agent
5-year incentive warrants to purchase 630 shares of common stock at an exercise
price of $3.96 per share. The market price of the Company's common stock on the
placement closing date was $3.03 per share. As of September 30, 1999, there were
issued and outstanding $11,000 in stated value of prepaid warrants, plus accrued
premium of $463, and incentive warrants to purchase a total of approximately
1,222 shares of common stock.

Each prepaid warrant is exercisable at the lower of $3.96 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.
On September 30, 1999, the exercise price would have been $3.55. 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.

F-21
<PAGE> 61
ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

11. STOCKHOLDERS' EQUITY -- (CONTINUED)
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 $3.96 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 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, which reflects their estimated fair value. The prepaid
warrants have been recorded at $8,643, 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 $463
for the year ended September 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. 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 $807 for the year ended
September 30, 1999 in net loss attributable to common shareholders.

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

F-22
<PAGE> 62
ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

11. STOCKHOLDERS' EQUITY -- (CONTINUED)
2,169 options, with exercise prices ranging from $5.19 per share to $19.50 per
share, were canceled, and approximately 1,446 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.

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

<TABLE>
<CAPTION>
NUMBER OF EXERCISE
SHARES PRICE RANGE
--------- ------------
<S> <C> <C>
Options outstanding at October 1, 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 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 at September 30, 1998............... 3,571 1.00-19.38
Granted............................................... 1,424 2.00- 4.38
Canceled or expired................................... (1,038) 1.53-18.25
Exercised............................................. (48) 1.00- 3.75
------
Options outstanding at September 30, 1999............... 3,909 1.00-19.38
======
Options exercisable at September 30, 1999............... 1,211
======
September 30, 1998............. 548
======
Shares reserved for issuance at September 30, 1999...... 966
======
</TABLE>

Weighted average option exercise price information for the fiscal years
ended September 30, 1999, 1998 and 1997 was as follows:

<TABLE>
<CAPTION>
1999 1998 1997
----- ------ ------
<S> <C> <C> <C>
Outstanding at beginning of year......................... $6.94 $11.08 $12.14
Granted during the year.................................. 2.61 6.68 12.86
Exercised during the year................................ 2.19 2.36 4.14
Canceled, terminated and expired......................... 8.64 11.88 16.51
Exercisable at year end.................................. 4.74 7.12 5.86
</TABLE>

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 greater than or equal to fair market value on the date of grant, no
compensation expense has been recognized by the Company in connection with its
stock-

F-23
<PAGE> 63
ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

11. STOCKHOLDERS' EQUITY -- (CONTINUED)
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 $(4,485), $(5,961) and $5,032 or
$(0.17), $(0.24) and $0.21 per share in fiscal 1999, 1998 and 1997,
respectively. The weighted average fair value of the options granted during
fiscal 1999, 1998 and 1997 is estimated at $2.01, $3.99 and $7.44 on the date of
grant (using Black-Scholes option pricing model) with the following weighted
average assumptions for fiscal 1999, 1998 and 1997, respectively: volatility of
95%, 70% and 64%, risk-free interest rate of 6.02%, 4.30% and 5.83%, and an
expected life of five years in fiscal 1999, 1998 and 1997.

12. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

FOR THE FISCAL YEARS ENDED SEPTEMBER 30, 1999 AND 1998:

<TABLE>
<CAPTION>
1999
---------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- -------- --------
<S> <C> <C> <C> <C>
Revenues.................................. $29,405 $27,294 $ 31,260 $ 40,271
Gross profit.............................. 12,571 11,861 14,243 18,029
Net income (loss) attributable to common
stockholders............................ (2,272) (4,189) (3,354) 94
Net income (loss) per share:
Basic and diluted....................... (0.09) (0.17) (0.13) 0.00
</TABLE>

<TABLE>
<CAPTION>
1998
---------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- -------- --------
<S> <C> <C> <C> <C>
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)
</TABLE>

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

F-24
<PAGE> 64
ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

13. CUSTOMERS, GEOGRAPHIC AND SEGMENT INFORMATION

MAJOR CUSTOMERS AND CREDIT CONCENTRATIONS

During fiscal 1999, no customer accounted for more than 10% of total
revenues. In fiscal 1998 and 1997, revenues from a single customer represented
20% and 23% of total revenues, respectively. No other customer accounted for
more than 10% of total revenues for fiscal 1998 and 1997.

GEOGRAPHIC OPERATIONS

For the purposes of segment reporting, management considers the Company to
operate in two segments of the machine vision industry. Operations by geographic
area are summarized as follows:

<TABLE>
<CAPTION>
FISCAL YEAR UNITED
ENDED SEPTEMBER 30, 1999 STATES EUROPE ELIMINATIONS CONSOLIDATED
------------------------ -------- ------- ------------ ------------
<S> <C> <C> <C> <C>
Revenues from unaffiliated
customers........................... $117,924 $10,306 $ -- $128,230
Transfers between geographic areas.... 4,405 (4,405) --
-------- ------- ------- --------
Total revenues................... $122,329 $10,306 $(4,405) $128,230
======== ======= ======= ========
Income (loss) before income tax
provision........................... $ (7,511) $(1,747) $ -- $ (9,258)
======== ======= ======= ========
Identifiable assets................... $125,911 $ 6,821 $(9,531) $123,201
======== ======= ======= ========
</TABLE>

<TABLE>
<CAPTION>
FISCAL YEAR UNITED
ENDED SEPTEMBER 30, 1998 STATES EUROPE ELIMINATIONS CONSOLIDATED
------------------------ -------- ------- ------------ ------------
<S> <C> <C> <C> <C>
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
======== ======= ======= ========
</TABLE>

<TABLE>
<CAPTION>
FISCAL YEAR UNITED
ENDED SEPTEMBER 30, 1997 STATES EUROPE ELIMINATIONS CONSOLIDATED
------------------------ -------- ------- ------------ ------------
<S> <C> <C> <C> <C>
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................... $136,448 $ 8,451 $(4,976) $139,923
======== ======= ======= ========
</TABLE>

Total revenues to customers outside the U.S. were $71,352, $108,711 and
$115,854 for the fiscal years ended September 30, 1999, 1998 and 1997,
respectively.

F-25
<PAGE> 65
ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

13. CUSTOMERS, GEOGRAPHIC AND SEGMENT INFORMATION -- (CONTINUED)
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, 1999, 1998 and 1997 were as follows:

<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Europe...................................................... $ 6,686 $ 7,501 $16,413
Asia/Pacific Rim............................................ 52,724 84,606 80,714
Other....................................................... 1,636 2,048 1,915
------- ------- -------
Total.................................................. $61,046 $94,155 $99,042
======= ======= =======
</TABLE>

SEGMENT INFORMATION

The Company operates in two reportable segments servicing the machine
vision industry. The Company has determined segments primarily based on the
nature of the products offered. The Semiconductor Equipment Group is comprised
of our Electronics division, as well as wholly-owned subsidiaries, Systemation
Engineered Products ("Systemation") and Vanguard Automation, Inc, ("Vanguard").
The Electronics division supplies inspection equipment to the semiconductor
industry; Systemation offers tape and reel component processing systems designed
to handle and inspect chip scale packages ("CSP") and ball grid array ("BGA")
packages; and, Vanguard is a supplier of BGA and CSP equipment for the
semiconductor and connection industries. The Company's other segment is 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.

The accounting policies of each segment are the same as those described in
Note 1. Sales between segments are determined based on an intercompany price
that is consistent with external customers. Intersegment sales by the Acuity
CiMatrix division were $1,300, $2,900 and $600 for fiscal 1999, 1998 and 1997,
respectively. Other income (loss) is comprised of corporate general and
administrative expenses. Other assets are comprised primarily of deferred taxes
and corporate accounts. Although certain research activities are conducted by
the Acuity CiMatrix division for the Semiconductor Equipment Group, research and
development expenses are reported in the segment where the costs are incurred.
The Company's strategy is to maximize the synergies between the segments. As
such, the Company generally manages its resources on an enterprise-wide basis,
taking into account segment information along with information about resources
shared in cooperative programs among the segments. The following table presents
information about the Company's reportable segments for the years ended
September 30:

<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
REVENUES:
Semiconductor Equipment........................... $ 82,793 $122,003 $118,182
Acuity CiMatrix................................... 45,437 47,004 51,160
-------- -------- --------
Total Revenues............................... $128,230 $169,007 $169,342
</TABLE>

F-26
<PAGE> 66
ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

13. CUSTOMERS, GEOGRAPHIC AND SEGMENT INFORMATION -- (CONTINUED)

<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
INCOME (LOSS) FROM OPERATIONS:
Semiconductor Equipment........................... $ 41 $(16,867) $ 4,973
Acuity CiMatrix................................... (1,464) (12,856) (3,271)
Other............................................. (7,260) (8,511) --
-------- -------- --------
Total income (loss) from operations.......... $ (8,683) $(38,234) $ 1,702
======== ======== ========
DEPRECIATION AND AMORTIZATION:
Semiconductor Equipment........................... $ 7,375 $ 5,943 $ 4,009
Acuity CiMatrix................................... 3,396 2,826 1,886
-------- -------- --------
Total depreciation and amortization.......... $ 10,771 $ 8,769 $ 5,895
======== ======== ========
TOTAL ASSETS
Semiconductor Equipment........................... $ 79,800 $ 78,441
Acuity CiMatrix................................... 32,286 35,415
Other............................................. 11,115 7,715
-------- --------
Total Assets................................. $123,201 $121,571
======== ========
</TABLE>

14. EARNINGS PER SHARE

The calculations for earnings per share for the fiscal years ended
September 30, 1999, 1998 and 1997 are as follows (in thousands, except per share
amounts):

<TABLE>
<CAPTION>
1999 1998 1997
------- -------- -------
<S> <C> <C> <C>
Net income (loss)................................... $(9,721) $(40,505) $ 648
======= ======== =======
Weighted average number of common shares -- basic... 25,669 24,613 23,718
Assumed number of shares issued from common share
equivalents....................................... -- -- 249
------- -------- -------
Weighted average number of common and common
equivalent shares -- diluted...................... 25,669 24,613 23,967
======= ======== =======
Net income (loss) per share -- basic................ $ (0.38) $ (1.65) $ 0.03
======= ======== =======
Net income (loss) per share -- diluted.............. $ (0.38) $ (1.65) $ 0.03
======= ======== =======
</TABLE>

For the years ended September 30, 1999 and 1998, the Company had potential
common shares equivalents excluded from the earnings per shares calculation of
2,500 and 594 respectively as they were considered anti-dilutive.

F-27
<PAGE> 67

FINANCIAL STATEMENT SCHEDULE II -- VALUATION AND

QUALIFYING ACCOUNTS AND RESERVES
(IN THOUSANDS)

<TABLE>
<CAPTION>
COLUMN C
----------
COLUMN A COLUMN B ADDITIONAL COLUMN E
---------- ---------- CHARGES TO COLUMN D ---------
BALANCE AT CHARGES TO OTHER ------------ BALANCE
BEGINNING COST AND ACCOUNTS-- DEDUCTIONS-- AT END OF
DESCRIPTION OF PERIOD EXPENSES DESCRIBE DESCRIBE PERIOD
----------- ---------- ---------- ---------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Year Ended September 30, 1999:
Allowance for doubtful
accounts..................... $ 1,000 $ 202 $-- $ 310(1) $ 892
------- ------- --- ------ -------
Reserve for excess and obsolete
inventory.................... $14,741 $ 418 $-- $8,405(1) $ 6,754
------- ------- --- ------ -------
Year Ended September 30, 1998:
Allowance for doubtful
accounts..................... $ 2,716 $ 329 $-- $2,045(1) $ 1,000
======= ======= === ====== =======
Reserve for excess and obsolete
inventory.................... $ 3,836 $16,562 $-- $5,657(1) $14,741
======= ======= === ====== =======
Year Ended September 30, 1997:
Allowance for doubtful
accounts..................... $ 1,400 $ 1,924 $-- $ 608(1) $ 2,716
------- ------- --- ------ -------
Reserve for excess and obsolete
inventory.................... $ 3,960 $ 1,435 $-- $1,559(1) $ 3,836
------- ------- --- ------ -------
</TABLE>

- -------------------------
(1) Amounts written off.

F-28
<PAGE> 68

ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1999 1999
------------ -------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 2,367 $ 6,293
Accounts receivable, net.................................. 45,258 37,502
Inventories............................................... 33,535 32,553
Prepaid expenses and other current assets................. 2,524 1,288
--------- ---------
Total current assets.............................. 83,684 77,636
Plant and equipment, net.................................. 11,693 12,281
Deferred income taxes..................................... 8,820 8,820
Goodwill, net of accumulated amortization of $1,564 and
$1,434................................................. 5,120 5,250
Software development costs, net........................... 14,158 13,965
Other assets.............................................. 7,062 5,249
--------- ---------
$ 130,537 $ 123,201
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable and current portion of long-term debt....... $ 35,561 $ 35,627
Accounts payable.......................................... 24,819 21,093
Accrued expenses and other current liabilities............ 16,573 16,531
--------- ---------
Total current liabilities......................... 76,953 73,251
Long-term debt............................................ 4,755 2,855
--------- ---------
Total liabilities................................. 81,708 76,106
Commitments and contingencies.............................
Prepaid warrants.......................................... 9,298 9,105
Stockholders' Equity:
Common stock, $0.01 par value; shares authorized 75,000;
issued and outstanding Dec. 1999 -- 27,438 and Sept.
1999 -- 27,354......................................... 274 274
Additional paid-in capital................................ 179,883 179,466
Accumulated deficit....................................... (140,551) (141,683)
Accumulated other comprehensive income.................... (75) (67)
--------- ---------
Total stockholders' equity........................ 39,531 37,990
--------- ---------
$ 130,537 $ 123,201
========= =========
</TABLE>

See notes to unaudited consolidated financial statements

F-29
<PAGE> 69

ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1999 AND 1998
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Revenues.................................................... $47,080 $29,405
Cost of revenues............................................ 26,256 16,834
------- -------
Gross profit................................................ 20,824 12,571
------- -------
Operating costs and expenses:
Research and development expenses........................... 5,863 5,590
Selling, general and administrative expenses................ 12,537 11,216
------- -------
Income (loss) from operations............................... 2,424 (4,235)
Gain on sale of assets...................................... -- (2,798)
Interest expense, net....................................... 1,071 835
------- -------
Income (loss) before income taxes........................... 1,353 (2,272)
Provision (benefit) for income taxes........................ 27 --
------- -------
Net income (loss)........................................... 1,326 (2,272)
Premium on prepaid warrants................................. 193 --
------- -------
Net income (loss) attributable to common stockholders....... $ 1,133 $(2,272)
======= =======
Net income (loss) per share:
Basic..................................................... $ 0.04 $ (0.09)
Diluted................................................... $ 0.04 $ (0.09)
Weighted Average shares:
Basic..................................................... 27,373 24,876
Diluted................................................... 30,492 24,876
</TABLE>

See notes to unaudited consolidated financial statements

F-30
<PAGE> 70

ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED DECEMBER 31, 1999 AND 1998

(IN THOUSANDS)

<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss)........................................... $ 1,326 $(2,272)
Adjustments to reconcile net income (loss) to net cash used
in operating activities:..................................
Depreciation and amortization............................. 2,396 2,632
Gain on sale of assets.................................... -- (2,798)
Changes in operating assets and liabilities (net of
effects of business acquired):
Accounts receivable..................................... (7,756) 1,830
Inventories............................................. (982) 4,432
Prepaid expense and other current assets................ (1,236) (241)
Other assets............................................ 63 (247)
Accounts payable........................................ 3,726 1,952
Accrued expenses and other current liabilities.......... 42 (1,526)
------- -------
Net cash (used in) operating activities................. (2,421) (142)
------- -------
INVESTING ACTIVITIES:
Additions to plant and equipment, net....................... (739) (46)
Additions to software development costs..................... (1,009) (1,501)
Proceeds from sale of assets................................ -- 4,050
------- -------
Net cash (used in) provided by investing activities..... (1,748) 2,503
------- -------
FINANCING ACTIVITIES:
Proceeds from the exercise of stock options and warrants.... 416 --
Net payments of short-term borrowings....................... (66) (2,025)
Repayment of long-term borrowings........................... (100) (104)
------- -------
Net cash provided by (used in) financing activities..... 250 (2,129)
------- -------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH
EQUIVALENTS............................................... (7) --
------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (3,926) 232
CASH AND CASH EQUIVALENTS:
Beginning of year......................................... 6,293 2,421
------- -------
End of period............................................. $ 2,367 $ 2,653
======= =======
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid............................................... $ 1,985 $ 835
======= =======
Taxes paid.................................................. $ -- $ --
======= =======
NONCASH INVESTING AND FINANCING ACTIVITIES:
Issuance of subordinated note payable in connection with
asset purchase agreement.................................. $ 2,000 --
======= =======
</TABLE>

See notes to unaudited consolidated financial statements

F-31
<PAGE> 71

ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

1. CONSOLIDATED FINANCIAL STATEMENTS

The Consolidated Balance Sheet of Robotic Vision Systems, Inc. and
Subsidiaries (the "Company") as of December 31, 1999, the Consolidated
Statements of Operations for the three month periods ended December 31, 1999 and
1998 and the Consolidated Statements of Cash Flows for the three month periods
ended December 31, 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 December 31, 1999 and for all periods
presented have been made.

Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. It is suggested that these condensed
consolidated financial statements be read in conjunction with the consolidated
financial statements and notes thereto included in the Company's Form 10-K for
the year ended September 30, 1999. The results of operations for the period
ended December 31, 1999 are not necessarily indicative of the operating results
for the full year.

2. INVENTORIES

Inventories at December 31, 1999 and September 30, 1999 consisted of the
following:

<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1999 1999
------------ -------------
<S> <C> <C>
Raw Materials.................................. $17,978 $16,817
Work-in-Process................................ 7,322 7,360
Finished Goods................................. 8,235 8,376
------- -------
Total................................ $33,535 $32,553
======= =======
</TABLE>

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 expires on March 17, 2000. At
December 31, 1999, the Company had borrowings of $35,325 outstanding, which
reflect the maximum commitment under the agreement and currently bears interest
at the prime rate plus 2% or 10.5%. The agreement contains certain financial
covenants, including minimum levels of profitability, liquidity and net worth.
In the third quarter of fiscal 1999, the agreement was amended to establish new
financial covenants, with which the Company is currently in compliance. The
Company is working to replace the revolving credit agreement.

4. SALE OF PRODUCT LINE

In December 1998, the Company sold its Aircraft Safety product line to a
subsidiary of B.F. Goodrich for $4,050 in cash. 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, resulting in a gain of $2,798. Proceeds from the
sale were used for working capital requirements and to repay $2,025 of
outstanding bank debt.

F-32
<PAGE> 72

ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(IN THOUSAND, EXCEPT PER SHARE AMOUNTS)

5. EARNINGS 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 and warrants would
be anti-dilutive. The calculations for earnings per share for the three months
ended December 31, 1999 and 1998 are as follows:

<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Net income (loss)................................... $ 1,133 $(2,272)
Weighted average number of common shares -- basic... 27,373 24,876
Assumed number of shares issued from common share
equivalents....................................... 3,119 --
------- -------
Weighted average number of common and common
equivalent shares -- diluted...................... 30,492 24,876
======= =======
Net income (loss) per share -- basic................ $ 0.04 $ (0.09)
======= =======
Net income (loss) per share -- diluted.............. $ 0.04 $ (0.09)
======= =======
</TABLE>

For the three months ended December 31, 1998, any such common stock equivalents
were anti-dilutive due to the loss for the period. For the three months ended
December 31, 1999 and 1998, the Company had potential common share equivalents
excluded from the earnings per share calculation of 4,161 and 3,688,
respectively, as they were considered anti-dilutive.

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 December 31, 1999
and 1998, total comprehensive income (loss) of $1,125 and $(2,272),
respectively, included net income (loss) of $1,133 and $(2,272), respectively,
and foreign currency translation adjustments of $(8) and $0, respectively.

7. SEGMENT INFORMATION

The Company operates in two reporting segments servicing the machine vision
industry. Intersegment sales by the Acuity CiMatrix division were $378 and $467
for the first quarter of fiscal 1999 and 1998, respectively. Other income (loss)
is comprised of corporate general and administrative expenses. Although certain
research activities are conducted by the Acuity CiMatrix division for the
Semiconductor Equipment Group, research and development expenses are reported in
the segment where the costs are incurred. The Company's strategy is to maximize
the synergies between the segments. As such, the Company generally manages its
resources on an enterprise-wide basis, taking into account segment information
along with information about resources shared in

F-33
<PAGE> 73

ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(IN THOUSAND, EXCEPT PER SHARE AMOUNTS)

cooperative programs among the segments. The following table presents
information about the Company's reportable segments for the quarters ended
December 31:

<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
REVENUES:
Semiconductor Equipment............................. $35,272 $17,722
Acuity CiMatrix..................................... 11,808 11,683
------- -------
Total Revenues...................................... $47,080 $29,405
======= =======
INCOME (LOSS) FROM OPERATIONS
Semiconductor Equipment............................. $ 3,826 $(2,084)
Acuity CiMatrix..................................... (121) (1,062)
Other............................................... (1,280) (1,089)
------- -------
Total income (loss) from operations................. $ 2,424 $(4,235)
======= =======
DEPRECIATION AND AMORTIZATION
Semiconductor Equipment............................. $ 1,777 $ 1,998
Acuity CiMatrix..................................... 619 634
------- -------
Total depreciation and amortization................. $ 2,396 $ 2,632
======= =======
</TABLE>

8. ACQUISITION OF INTELLECTUAL PROPERTY RIGHTS

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. In November 1999, we
acquired Polaroid's interest in the MXi, including all relevant intellectual
property rights, for $2.0 million and our agreement to pay Polaroid a 10-year
royalty upon net sales of the MXi. Our $2.0 million obligation to Polaroid is
evidenced by a five-year subordinated note, which bears interest at 11% and is
payable at maturity. The note is convertible into shares of our common stock at
$8.00 per share if conversion were to occur on or before November 10, 2004 and,
thereafter, the higher of $4.25 or the then fair market value per share. We
concurrently entered into an agreement with Polaroid calling for it to
manufacture this product on our behalf.

F-34
<PAGE> 74

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

YOU SHOULD RELY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO WHICH WE
HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION
THAT IS DIFFERENT. THE INFORMATION IN THIS DOCUMENT MAY ONLY BE ACCURATE ON THE
DATE OF THIS DOCUMENT. THIS DOCUMENT MAY BE USED ONLY WHERE IT IS LEGAL TO SELL
THESE SECURITIES.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................. 1
Risk Factors........................ 5
Cautionary Statement Regarding
Forward-Looking Statements........ 8
Use of Proceeds..................... 9
Price Range of Common Stock......... 9
Dividend Policy..................... 9
Capitalization...................... 10
Selected Consolidated Financial
Information....................... 11
Business............................ 12
Management's Discussion and Analysis
of Financial Condition and Results
of Operations..................... 22
Management.......................... 31
Selling Shareholder................. 33
Underwriting........................ 34
Legal Matters....................... 35
Experts............................. 35
Where You Can Find More
Information....................... 36
Incorporation of Certain Documents
by Reference...................... 36
Index to Consolidated Financial
Statements and Financial Statement
Schedule.......................... F-1
</TABLE>

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

5,250,000 SHARES

ROBOTIC VISION SYSTEMS, INC.

[ROBOTIC VISION SYSTEMS LOGO]
------------------------
PROSPECTUS
, 2000
------------------------
ING BARINGS

PRUDENTIAL VOLPE TECHNOLOGY
A UNIT OF PRUDENTIAL SECURITIES

MCDONALD INVESTMENTS INC.
------------------------------------------------------
------------------------------------------------------
<PAGE> 75

ROBOTIC VISION SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(IN THOUSAND, EXCEPT PER SHARE AMOUNTS)

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table sets forth various expenses, other than underwriting
discounts, which will be incurred in connection with this offering:

<S> <C>
SEC registration fee........................................ $ 21,078
NASD filing fee............................................. 8,742
Blue sky fees and expenses.................................. 200
Printing expenses........................................... 250,000
Legal fees and expenses..................................... 250,000
Accounting fees and expenses................................ 150,000
Miscellaneous expenses...................................... 20,000
----------
$ 700,000
==========
</TABLE>

ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Except as set forth in this Item 15, 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.

Reference is also made to Section 6(b) of the underwriting agreement filed
as Exhibit 1.1 to the registration statement for information concerning the
underwriters' obligation to indemnify the registrant and its officers and
directors in certain circumstances.

II-1
<PAGE> 76

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ------------------------------------------------------------
<C> <S>
1.1* Form of Underwriting Agreement between registrant and the
underwriters
4.1* Specimen certificate representing registrant's common stock
4.2 Registrant's Restated Certificate of Incorporation(1)
4.3 Amendments to registrant's Restated Certificate of
Incorporation of registrant(2)
4.4 Registrant's Bylaws, as amended(3)
4.5 Rights Agreement, dated as of May 14, 1998, between
Registrant and American Stock Transfer & Trust Company(3)
5.1 Opinion of Cooperman Levitt Winikoff Lester & Newman, P.C.
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of Cooperman Levitt Winikoff Lester & Newman, P.C.
(contained in their opinion included under Exhibit 5.1)
24.1 Power of Attorney (comprises a portion of the signature page
to this registration statement)
</TABLE>

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

* Previously filed with this Registration Statement

(1) Filed as an exhibit to registrant's registration statement on Form S-4, File
No. 333-08633.

(2) Filed as an exhibit to registrant's registration statement on Form S-1, File
No. 333-76927.

(3) Filed as an exhibit to registrant's current report on Form 8-K dated May 20,
1998.

ITEM 17. UNDERTAKINGS.

The undersigned the registrant hereby undertakes:

(1) That for purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of prospectus
filed as part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this registration statement as of the time it was declared
effective.

(2) That for the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a form of
prospectus 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.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers, and controlling persons of the
registrant pursuant to Item 15 of Part II of the registration statement, 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 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 and will be governed by the final adjudication of such issue.

II-2
<PAGE> 77

SIGNATURES

In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form S-3 and 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 February 1,
2000.

ROBOTIC VISION SYSTEMS, INC.

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

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.

In accordance with the requirements of the Securities Act of 1933, this
Registration Statement was signed by the following persons in the capacities and
on the dates stated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/ PAT V. COSTA Chairman, President and Chief Executive February 1, 2000
- ------------------------------------ Officer (Principal Executive Officer)
Pat V. Costa

/s/ FRANK D. EDWARDS Chief Financial Officer and Treasurer February 1, 2000
- ------------------------------------ (Principal Financial and Accounting
Frank D. Edwards Officer)

/s/ HOWARD STERN Director February 1, 2000
- ------------------------------------
Howard Stern

/s/ FRANK DIPIETRO Director February 1, 2000
- ------------------------------------
Frank DiPietro

/s/ JAY M. HAFT Director February 1, 2000
- ------------------------------------
Jay M. Haft
</TABLE>

<PAGE> 78

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/ TOMAS KOHN Director February 1, 2000
- ------------------------------------
Tomas Kohn

/s/ DONALD J. KRAMER Director February 1, 2000
- ------------------------------------
Donald J. Kramer

/s/ MARK J. LERNER Director February 1, 2000
- ------------------------------------
Mark J. Lerner

/s/ ROBERT H. WALKER Director February 1, 2000
- ------------------------------------
Robert H. Walker
</TABLE>

<PAGE> 1

Exhibit 5.1

[Letterhead of Cooperman Levitt Winikoff Lester & Newman, P.C.]

February 2,2000

Robotic Vision Systems, Inc.
5 Shawmut Road
Canton, Massachusetts 02021

Re: Amendment No. 1 to Registration Statement on Form S-3
Under the Securities Act of 1933, As Amended

Gentlemen:

In our capacity as counsel to Robotic Vision Systems, Inc., a Delaware
corporation (the "Company"), we have been asked to render this opinion in
connection with Amendment No. 1 to the Registration Statement on Form S-3 (File
No. 333-94971) being filed contemporaneously herewith by the Company with the
Securities and Exchange Commission under the Securities Act of 1933, as amended
(the "Registration Statement"), covering (i) 5,000,000 shares of common stock,
par value $.01 per share, of the Company (the "Common Shares") being offered
for the account of the Company (the "Company Common Shares"), (ii) 750,000
additional Common Shares, being offered for the account of the Company to cover
over-allotments (the "Over-Allotment Shares") and (iii) an estimated 250,000
additional Common Shares being offered for the account of a selling shareholder
upon conversion of a $2,000,000 subordinated convertible note (the "Convertible
Note") held by the selling shareholder (the "Shareholder's Common Shares").

In that connection, we have examined the Restated Certificate of
Incorporation, as amended, and the By-laws of the Company, the Registration
Statement, corporate proceedings of the Company relating to the issuance of the
Company Common Shares, the Over-Allotment Shares, the Convertible Note and the
Shareholder's Common Shares and such other instruments and documents as we have
deemed relevant under the circumstances.

In making the aforesaid examination, we have assumed the genuineness of
all signatures and the conformity to original documents of all copies furnished
to us as original or photostatic copies. We have also assumed that the
corporate records furnished to us by the Company include all corporate
proceedings taken by the Company to date.

Based upon and subject to the foregoing, we are of the opinion that:

1. The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Delaware.

2. The Company Common Shares and the Over-Allotment Shares have each
been duly and validly authorized and, when issued and paid for as described in
the Registration Statement, will be duly and validly issued, fully paid and
non-assessable Common Shares.

3. The Shareholder's Common Shares have been duly and validly authorized
and, when issued upon conversion of the Convertible Note as described in the
Registration Statement, will be duly and validly issued, fully paid and
non-assessable Common Shares.

We hereby consent to the use of our opinion as herein set forth as an
exhibit to the Registration Statement and to the use of our name under the
caption "Legal Matters" in the prospectus forming a part of the Registration
Statement.

Very truly yours,

COOPERMAN LEVITT WINIKOFF
LESTER & NEWMAN, P.C.

By: /s/ Harris Jaffe
-----------------------------------
A Member of the Firm

<PAGE> 1
Exhibit 23.1

INDEPENDENT AUDITORS' CONSENT

We consent to the incorporation by reference in this Amendment No. 1 to
Registration Statement No. 333-94971 of Robotic Vision Systems, Inc. (the
"Company") on Form S-3 of our report dated December 27, 1999, included in the
Annual Report on Form 10-K of the Company for the year ended September 30,
1999, and to the use of our report dated December 27, 1999, appearing in the
Prospectus, which is part of this Registration Statement. We also consent to the
reference to us under the heading "Experts" in such Prospectus.

/s/ DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 2, 2000