---

---

UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549

---

FORM 10-K

(Mark One)

|/x/ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|--- | ------------------------------------------------------------------------------------

For the fiscal year ended DECEMBER 31, 2000

or

|/ / | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|--- | ----------------------------------------------------------------------------------------

For the transition period from  to .

Commission File Number: 0-20815

---

INVISION TECHNOLOGIES, INC.(Exact name of registrant as specified in its charter)

DELAWARE

94-3123544(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer
Identification No.)


7151 GATEWAY BOULEVARD, NEWARK, CALIFORNIA 94560(Address of principal executive offices, including zip code)

(510) 739-2400(Registrant's telephone number, including area code)

Securities
Registered Pursuant to Section 12(b) of the Act: NONE

Securities Registered Pursuant to Section 12(g) of the Act: COMMON STOCK, $.001 PAR VALUE

---

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

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

Based
on the closing price of $3.00 on March 26, 2001, the aggregate market value of the voting stock held by non-affiliates of the Registrant was $28,264,821. For
purposes of this computation, voting stock held by directors and executive officers of the Registrant and stockholders holding 5% or more of the Registrant's outstanding Common Stock has been
excluded. Such exclusion is not intended, and shall not be deemed, to be an admission that such directors, executive officers and stockholders are affiliates of the Registrant.

On
March 26, 2001, there were 12,650,281 shares of the Registrant's Common Stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant's definitive Proxy Statement which will be filed with the Securities and Exchange Commission in connection with the Registrant's
Annual Meeting of Stockholders to be held June 21, 2001 are incorporated by reference in Part III, Items 10, 11, 12 and 13 of this report.

---

---

---

INVISION TECHNOLOGIES, INC.
TABLE OF CONTENTS

|                                                                                              |  | PAGE
|--------------------------------------------------------------------------------------------- |  | ----
|COVER PAGE                                                                                    |  |     
|TABLE OF CONTENTS                                                                             |  | i   
|PART I.                                                                                       |  | 1   
|Item 1. Business                                                                              |  | 1   
|Item 2. Properties                                                                            |  | 22  
|Item 3. Legal Proceedings                                                                     |  | 22  
|Item 4. Submission of Matters to a Vote of Security Holders                                   |  | 22  
|PART II.                                                                                      |  | 23  
|Item 5. Market for Registrant's Common Equity and Related Stockholder Matters                 |  | 23  
|Item 6. Selected Financial Data                                                               |  | 24  
|Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations |  | 25  
|Item 7A. Quantitative and Qualitative Disclosures About Market Risk                           |  | 33  
|Item 8. Financial Statements And Supplementary Data                                           |  | 34  
|Item 9. Changes In And Disagreements With Accountants On Accounting And Financial Disclosure  |  | 34  
|PART III.                                                                                     |  | 35  
|Item 10. Directors And Executive Officers Of The Registrant                                   |  | 35  
|Item 11. Executive Compensation                                                               |  | 35  
|Item 12. Security Ownership of Certain Beneficial Owners and Management                       |  | 35  
|Item 13. Certain Relationships and Related Transactions                                       |  | 35  
|PART IV.                                                                                      |  | 36  
|Item 14. Exhibits, Financial Statement Schedules And Reports On Form 8-K                      |  | 36  
|SIGNATURES                                                                                    |  | 38  

i

---



PART I.

ITEM 1. BUSINESS



This Annual Report on Form 10-K of InVision Technologies, Inc. (the "Company") contains forward-looking statements which involve
risks and uncertainties. When used in this Annual Report on Form 10-K, the words "anticipate," "believe," "estimate," and "expect" and similar expressions identify such
forward-looking statements. The Company's actual results, performance, or achievements could differ materially from the results expressed in, or implied by, these forward-looking statements. Factors
that could cause or contribute to such differences include:





The Company brings to market advanced detection and inspection products by adapting various medical and laboratory technologies for government and commercial
uses, such as security, defense and process control.

The
Company is the worldwide leader in explosive detection technology. The Company develops, manufactures, markets and supports explosive detection systems for civil aviation security
based on advanced computed tomography ("CT") technology. The Company's products were the first automated explosive detection systems to be certified by the Federal Aviation Administration ("FAA") as
meeting its stringent requirements. The Company has sold an aggregate of 231 systems to the FAA, foreign aviation security agencies, and domestic and foreign airports and airlines.

The
Company, through its wholly owned subsidiary Quantum Magnetics, Inc. ("Quantum"), develops for commercialization patented and proprietary technology for inspection,
detection and analysis of explosives and other materials. Quantum's products are based on passive magnetic sensing technology and quadrupole resonance ("QR") technology, a form of magnetic resonance.
The Company believes that QR technology is more accurate than conventional x-ray bulk detection techniques because QR identifies the explosive itself compared to other techniques that
predict the presence of explosives by measuring object density or atomic number. Quantum receives grants from a variety of US government agencies for research and development of military and
humanitarian landmine detection, carry-on luggage screening, concealed weapon detection, drug detection, and in-process materials inspection.

In
February 2000, the Company announced the formation of the WoodVision division ("WoodVision") to develop the Company's CT technology to optimize the value and yield of
harvested

1

---

timber. Previous studies indicated that CT technology can be applied to see inside a log before it is sawn. The Company believes that a market for a product that does this exists. The Company is
conducting field trials, which started in 1999, to develop such a system. In connection with the formation of WoodVision, the Company acquired, as a wholly-owned subsidiary, Inovec, Inc.
("Inovec"), effective as of January 1, 2000. Inovec manufactures, markets and supports advanced optimization equipment for sawmills based on laser scanning and other optimization technologies.
Since inception, Inovec has installed over 600 laser scanners and other optimization systems in over 300 sawmills worldwide.

InVision
was incorporated in Delaware in 1990. Its headquarters and principal manufacturing facilities are located in Newark, California. InVision acquired Quantum as a wholly owned
subsidiary in 1997. Quantum is a California corporation located in San Diego, California. Inovec is a Delaware corporation, with its headquarters and manufacturing facilities located in Eugene,
Oregon.



The Company reports its financial information in three segments, based on types of technology and consolidated applications. Financial information for each
segment, including revenue, profits and total assets, is reported in Note 10 of the Consolidated Financial Statements in Part IV of this Report.

EDS.The "EDS" segment is comprised of the business unit that develops, manufactures, markets and supports explosive
detection systems based on CT technology. For the years ended December 31, 2000, 1999 and 1998, the Company had EDS product and service revenues of $54.8 million, $47.6 million
and $63.3 million, respectively. At December 31, 2000, the Company had in backlog equipment orders and service agreements of approximately $8.1 million, primarily consisting of
service agreements. In the first quarter of 2001, the Company received orders valued at approximately $10.5 million from the FAA and an international customer for multiple explosive detection
systems, accessories and service.

Quantum.The "Quantum" segment is comprised of the business unit that develops for commercialization technology for
inspection, detection and analysis of explosives, primarily landmine detection, and other materials based on quadrupole resonance and passive magnetic sensing. For the
years ended December 31, 2000, 1999 and 1998, the Company had government contract revenues of $10.6 million, $10.7 million and $7.2 million, respectively. The Company also
had a small amount of product revenue in 2000 and 1999. As of December 31, 2000, the Company had $23.6 million of government research and development contracts in backlog.

Wood.The "Wood" segment is comprised of those business units that develop, manufacture, market and support technology
to optimize the value and yield of harvested timber based on different types of scanning technologies, including CT technology. The Company conducts the business of this segment through its WoodVision
division and its Inovec subsidiary. For the year ended December 31, 2000, Inovec had product and service revenues of $13.4 million. At December 31, 2000, Inovec had in backlog
equipment orders and service agreements of approximately $1.8 million. In the first quarter of 2001, the Company received orders valued at approximately $2.2 million for laser-based
optimization and scanning sysetms for lumber manufacturing. WoodVision is still developing the CT based log scanner and had no revenues or backlog as of December 31, 2000.



Products.The Company's current EDS products are the CTX 2500, CTX 5500 DS and CTX 9000
DSi systems (together, the "CTX Series"). These products are designed, through variation in

2

---

price, size and throughput, to provide a "family" of explosive detection systems for the inspection of checked baggage on commercial flights around the world.



All
three models are certified by the FAA as automated explosive detection systems.

Service.In addition to providing generally a one year parts and service warranty with the sale of each system, the
Company offers fee-based primary and back-up service contracts to its customers to provide system maintenance, ongoing technical support, documentation, training and, where no
new hardware is required, periodic software releases.

Training.The Company believes that operator qualification and training in the utilization of the CTX system is
important to the detection of explosives. The Company provides operator training and testing as a critical component of each sale and installation. It licenses its training materials to FAA approved
customers for a nominal fee. The Company also offers a standalone training console that simulates a CTX system for sale to customers to train operators to use a CTX system without disrupting the
operation of a deployed CTX system.



Market Size.There are over 1,400 airports worldwide providing scheduled service for an aggregate of approximately
2.5 billion passengers per year. Of these airports, over 550 are located in the United States. A substantial portion of the remainder are located in Europe and the Asia/Pacific region. The
market for checked baggage inspection systems depends on both the volume of checked baggage to be inspected and the applicable government regulation of baggage inspection.

Worldwide Standards.In the 1970's, in response to hijackings, airports worldwide began to install x-ray
systems to screen carry-on baggage for weapons such as guns and knives. Following the December 1988 bombing of Pan American Flight 103 over Lockerbie, Scotland, the European Civil
Aviation Commission ("ECAC") mandated a goal for all of its member states to implement 100% checked baggage screening using equipment based on existing technologies. According to ECAC, the vast
majority of ECAC member states report themselves as being on course to achieve 100% screening by the target date of December 31, 2002.

FAA Certification.In response to airline bombings, in the late 1970's the FAA established a program to develop
automated explosive detection capabilities based on existing x-ray technology. In response to the 1988 Lockerbie bombing, the United States enacted the Aviation Security Improvement Act of
1990 (the "Aviation Security Act"). In 1993, as required by the Aviation Security Act, the FAA adopted a certification protocol regarding explosive detection systems for use on checked baggage. The
FAA certification process was developed to certify equipment that, alone or as part of an integrated

3

---

system, can detect, under realistic air carrier operating conditions, the amounts, configurations and types of explosive material which would be likely to be used to cause catastrophic damage to
commercial aircraft.

Multi-Level Screening Processes.Certain airports around the world have sought to augment their detection capabilities
by implementing various multi-level screening processes. To date, two distinct processes have become most prevalent: a system first implemented in the United Kingdom (the "Technology Based Multi-Level
Approach"); and a system endorsed by the FAA following the advent of certified detection technology (the "CAPPS and Detection Approach").



Effect of Customer Operations.The Company's newer customers have only limited experience with the operation of the CTX
Series in high-volume airport operations. Many of the factors necessary to make the overall baggage scanning system a success, such as the CTX Series' integration with the baggage handling
system, are beyond the control of the Company. Also, unsatisfactory performance of operators can lead to reduced effectiveness of the CTX Series. In particular, once the CTX system identifies a
threat, the operator must make a determination whether the threat is actual or a false alarm. The failure of the CTX Series to perform successfully in deployments, whether due to the limited
experience of a customer, operator error or any other reason, may have an adverse effect on the market's perception of the Company and its products.

Export Control.The Company is subject to risks associated with regulations relating to the export of high technology
products. In particular, the Company's automated explosive detection systems for aviation security are commodities subject to export control by the U.S. Department of Commerce. They may also be deemed
to be defense articles subject to export control by the U.S. Department of State. Exports may be prohibited or limited to a small number of countries.

Risk of Changing Standards.There currently is no requirement that U.S. or international airlines or airports deploy
FAA-certified explosive detection systems. There is also no requirement that U.S. airlines or airports (or most international airlines or airports) deploy explosive detection systems at
all. However, the FAA has the responsibility to set and maintain performance standards for explosive detection systems for all U.S. airlines, both in the U.S. and abroad. Should the FAA increase its
certification standards, the Company cannot assure that its products would meet such standards.



Direct and Indirect Sales Personnel.The Company markets its EDS products both directly through internal sales
personnel and indirectly through authorized agents, distributors and systems integrators.

4

---

As of December 31, 2000, the Company employed a total of 21 people including four contractors in sales and marketing. In North America, the Company markets its EDS products primarily through
direct sales personnel, which as of December 31, 2000, consisted of three individuals. Internationally, the
Company utilizes both a direct sales force and authorized agents to sell its products. As of December 31, 2000, the Company had four direct international sales personnel broadly covering
Europe, Asia, the Middle East and Africa and additional authorized representatives representing the Company in specific countries. For sales through its authorized representatives and distributors,
the Company generally is directly involved in developing proposal documents and negotiating contract terms.

Selling Process.The selling process often involves a team comprised of individuals from sales, marketing, engineering,
customer service and support, and senior management. The team frequently engages in a multi-level sales effort directed toward a variety of constituents, including government regulators, the local
airport operator or authority, systems and or conveyor integrators, individual airlines and airline operating committees. The Company provides its sales representatives with training, promotional
literature, a multi-media presentation, videos and competitive analysis. The sales process includes assisting customers to design baggage handling system configurations, including the use of computer
modeling, educating customers on the system and technology, and supporting the implementation and integration process.

Lengthy Sales Cycle.The combination of the high average selling prices, the time needed for various agencies to secure
funding for systems, and the negotiation and execution of actual contracts leads to a typical sales cycle lasting from six to twelve months, or more, after initial contact with a customer. Often,
local government regulators become involved in the sales decision process or provide funds for the purchase. For repeat orders from existing customers, the Company can sometimes expedite the sales
cycle by utilizing existing contracts and contract extensions and thereby avoid lengthy procurement processes.

Customer Support.The Company believes that customer service and support are critical to its success and has committed
significant resources to these functions. The Company provides a high level of customer support to assist in the site planning, installation and integration of the Company's products into its
customer's facilities in addition to field service for maintaining the reliability of the Company's products once installed. The Company's service organization includes customer service engineers,
product application specialists and technical support engineers. As of December 31, 2000, the Company had 58 individuals employed in customer service and support roles. The Company typically
hires and trains its own support staff throughout the world rather than relying on third-party maintenance providers, although a number of third party relationships exist outside the United States.



Through December 31, 2000, the Company has shipped 231 CTX Series systems. 146 of these systems were shipped to the FAA and U.S. airlines for
installation at the busiest U.S. airports and certain U.S. airlines' foreign locations. For reasons of security, the FAA will not divulge the deployment schedule or
locations of these systems. The Company shipped 85 CTX Series systems to international customers for installation at major international airports in Belgium, England, France, Greece, Hong Kong,
Israel, Malaysia, The Netherlands, South Korea, Spain and South Africa. In 2000, the Company shipped 32 systems to the FAA and U.S. airlines, and 12 systems to international customers.

Sales to FAA.To date, all orders from United States customers have been entirely funded by the FAA. In response to the
crash of TWA Flight 800 off Long Island, New York in July 1996, President Clinton announced the formation of the White House Commission on Aviation Safety and Security, chaired by Vice
President Gore (the "Gore Commission"), to review airline and airport security and oversee aviation safety. In response to the Gore Commission's conclusions, the U.S. appropriated

5

---

$52.2 million for the FAA to purchase certified explosive detection technology, consisting of the Company's CTX 5000 systems. As a result, the Company had sales to the FAA of the Company's
products and services of $30.8 million in fiscal 2000, $37.1 million in fiscal 1999 and $37.9 million in fiscal 1998. The Company's largest sales contract to date, for 105 CTX
Series systems, all of which have been shipped, was with the FAA. The FAA signed three new contracts with the Company in March 2000 to purchase up to 60 of each of the Company's CTX 2500, CTX
5500 and CTX 9000 systems. The Company cannot assure that the FAA will obtain funding to purchase or will purchase more than the 11 CTX 9000 systems, 15 CTX 5500 systems and 13 CTX 2500 systems for
which the Company has received orders to date.

Dependence on Few Customers.In any given fiscal year, the Company's EDS product and service revenues have principally
consisted, and the Company believes will continue to consist, of orders of multiple units from a limited number of customers. While the number of individual customers may vary from period to period,
the Company is nevertheless dependent upon these multiple orders for a substantial portion of its revenues. The Company cannot assure that it will obtain such multiple orders on a consistent basis.
During the year ended December 31, 2000, approximately $43.8 million, or 80.0%, of the Company's EDS product and service revenues were generated from sales to the Company's five largest
customers, of which $30.8 million, or 56.1%, of the Company's EDS product and service revenues were generated from sales to the FAA.

Public Agency Contract and Budget Risks.Substantially all of the Company's EDS customers to date have been public
agencies or quasi-public agencies. In contracting with public agencies, the Company is subject to public agency contract requirements which vary from jurisdiction to jurisdiction and which are subject
to budgetary processes and expenditure constraints. Budgetary allocations for explosive detection systems are dependent, in part, upon governmental policies which fluctuate from time to time in
response to political and other factors, including the public's perception of the threat of commercial airline bombings. In addition, public agency bidding processes have been and may continue to be
protracted, and typically contain provisions that permit cancellation in the event that funds are unavailable to the public agency.



Explosive Detection Technologies.The market for explosive detection systems is intensely competitive and is
characterized by continuously developing technology and frequent introductions of new products and features. The Company expects competition to increase as other companies introduce additional and
more competitive products and as the Company develops additional capabilities and enhancements for the CTX Series. Several advanced explosive detection technologies have been developed to attempt to
address the need for effective explosive detection, including:



6

---



Certified Technologies.Only explosive detection systems based on CT technology have been certified by the FAA.
Competitors have attempted to obtain FAA certification of systems based on non-CT technology in the past without success. Multi-view systems have undergone extensive FAA
certification testing. The Company believes that CT based explosive detection technology is the only type of commercially deployed equipment capable of detecting all types of explosives designated by
the FAA to be a threat to commercial aviation. The Company believes that even if other technologies can be improved, CT technology will maintain its advantage if the FAA supplements, as it is
proposing to do, its current certification testing with additional requirements designed to detect lower quantities of explosives than currently required.

CT Based Competitor.In 1994, the Company introduced the first CT based explosive detection system, which was
subsequently certified by the FAA. In November 1998 L-3 Communications Corporation ("L-3"), a spin-off of Lockheed Martin Corporation, entered the market
with a CT based system that was certified by the FAA. In January 2001, L-3 announced that the FAA had certified a more compact and lower throughput version of its CT based product.
The Company believes that its CTX Series is superior to the L-3 products for the following reasons:



7

---



Dual Energy X-Ray and Multi-View Competitors.Competitors such as PerkinElmer, Inc.
Detection Systems Group (formed by the merger of Vivid Technologies, Inc., and EG&G Astrophysics) ("PerkinElmer") and Heimann Systems GmbH, offer non-certified explosive detection
systems using dual energy x-ray technology. PerkinElmer has also introduced a model using multi-view technology using fixed x-ray sources. The Company believes that
the CTX Series is superior to the dual energy and multi-view x-ray systems for the following reasons:



Other Non-CT Competitors.Other principal competitors in the market for explosive detection systems are
Thermedics Detection Inc., Barringer Technologies Inc., and Ion Track Instruments, which use trace detection technology (sniffers). YXLON International X-Ray GmbH has
introduced an explosive detection system using x-ray scatter (diffraction) technology. Heimann Systems GmbH has introduced a system that combines x-ray scanning technology with
x-ray diffraction technology. Diffraction technology offers the promise of extremely low false alarm rates, but when used alone appears to be too slow, large and expensive for airport
application. To date none of these competitors offer a product certified by the FAA. The Company believes that these and other non-CT explosive detection technologies have significant
weaknesses that have prevented them from being certified, and also prevented them from being sold in significant quantities for checked baggage inspection.

Competitive Factors Other than Detection.The Company believes that it can compete in the EDS market based on many
factors that are important in the market, including explosive detection capability and accuracy, product quality and features, customer support, documentation and training. However, other factors are
important, such as price, throughput, the ability to handle all sizes of baggage, and the ease of integration into existing baggage handling systems. Certain of the Company's competitors may have an
advantage over the Company for the following reasons:

8

---



Manual Methods.In addition to other explosive detection systems, the Company's products compete against more manual
methods of assuring the security of checked baggage. In "100% system-wide bag match" passengers and bags are matched not only at flight origination but also in connection with layovers and
connecting flights. Bag match is an explosive deterrent system based on the assumption that a bomber does not want to commit suicide. In "Procedural CAPPS and manual search" computer-assisted
passenger prescreening is used to identify passenger bags to be hand searched. In "directed trace and hand search," a conventional x-ray system is used to identify suspicious bags that are
then hand searched with the assistance of trace detection. Directed trace and hand search relies on scanning technology that is not currently able to identify all types of explosives even at the
"suspicious" level and often requires suitcases to be opened. These manual methods are extremely slow and labor intensive and impose inconveniences on the flying public which make them unpopular.
These manual methods can compete with the Company's products depending on the local cost of labor, and the willingness of the airlines' customers to put up with the longer pre-flight
check-in requirements necessary to implement these methods on a large scale and to accept the increased invasion of privacy that more frequent hand searches of luggage would entail.

Risk of Certification of Competing Technologies.CT based systems are slower and more expensive than uncertified
systems based on conventional and dual energy x-ray technology. If competitors develop systems based on dual energy, multi-energy or other non-CT technology to the point where
such systems could be certified, the result will be the entry into the market of lower priced, higher throughput explosive detection systems. If so, the Company would lose a significant competitive
advantage.



The Company measures its backlog of product and service revenues as orders for systems and upgrades for which contracts or purchase orders have been signed,
but which have not yet been shipped; and as orders for maintenance related to product support for which contracts have been signed, but maintenance service has not yet been performed. The Company
typically ships its EDS products within three to twelve months after receiving an order. However, such shipments may be affected by delays which occur in the delivery of components to the Company or
customers' readiness to accept delivery for reasons of site preparation or otherwise. At December 31, 2000, the Company's EDS product and service revenue backlog was approximately
$8.1 million, compared to $19.8 million at December 31, 1999.
The Company expects to fill the majority of these orders and complete the majority of these services in 2001. In the first quarter of 2001, the Company received EDS orders valued at approximately
$10.5 million from the FAA and an international customer for CTX systems, accessories and service.

9

---

Any failure of the Company to meet an agreed upon schedule could lead to the cancellation of the related order. Variations in the size, complexity and delivery requirements of the
customer order may result in substantial fluctuations in backlog from period to period. The Company believes that it is important for competitive reasons and to better satisfy customer requirements to
reduce order lead times and expects that the Company's backlog may decrease on a relative basis over time. In addition, all orders are subject to cancellation or delay by the customer and,
accordingly, the Company cannot assure that such backlog will eventually result in revenues. For these reasons, the Company believes that backlog cannot be considered a meaningful indicator of the
Company's performance on an annual or quarterly basis.



Products.The Company develops for commercialization patented and proprietary technology for inspection, detection and
analysis of explosives and other materials. The Company's Quantum products are based on passive magnetic sensing technology and quadrupole resonance ("QR") technology, a form of magnetic resonance.
The Company's Quantum products, primarily in the prototype stage, include advanced detection systems for such markets as military and humanitarian landmine detection, carry-on luggage
screening, concealed weapon detection, drug detection and postal inspection. The Company is also a leading supplier of research and development services in the area of QR technology and passive
magnetic sensing to a number of government agencies. In 2000 the Company received grants for approximately $31.3 million in research funding for all products.

Baggage and Package Screening.The Company offers fully automatic entry point screening systems based on QR technology,
which has a high detection rate for specified explosives combined with one of the lowest false alarm rates for any type of technology. In particular, QR technology has significant detection
capabilities to identify components typically found in sheet explosive, which has been the
most difficult type of explosive to detect, as well as military plastic explosives. QR directly measures the presence of the specific target material, by identifying the explosive's characteristic
signals. The Company's systems can be used alone or to complement existing x-ray screening systems. The Company is developing systems combining the current systems with complementary
technologies. The current models available for sale are:



Landmine Detection.The Company's QR technology is considered to be the most promising landmine detection technology.
With funding from the Defense Advanced Research Projects Agency ("DARPA"), the Company developed a cart-based prototype with a tethered, hand-held probe. The probe emits radio
frequency magnetic field pulses at the characteristic QR frequency of the explosive. These pulses stimulate coherent signals from the mine that are picked up by a tuned antenna, amplified in a
sensitive receiver, and analyzed digitally. Since the QR resonance frequency is highly specific for individual compounds, tests have demonstrated a very high level of detection and a very low
incidence of false alarms. This prototype was tested in Bosnia in the summer of 1999. Later in 1999 the prototype successfully demonstrated 100% detection of antipersonnel and antitank landmines
during extensive field trials at the Army Combat Engineering School test facility at Fort Leonard Wood, Missouri. This was the first time that plastic, low metal content, TNT landmines had been
detected with this level of performance by any system in actual field conditions. The current QR prototype system detects metal, RDX, TNT and Composition B, and is thus able to detect the vast
majority of all landmines deployed

10

---

throughout the world. The Company expects future systems to be able to detect tetryl as well. QR has the ability to operate in almost all soil conditions including saturated soils, as well as through
water.

Weapons Detection.The Company's passive magnetic technology combines high weapons detection probability with a low
rate of false alarms. It is capable of real time detection and tracking of concealed weapons. This makes it attractive for screening large numbers of people at entrances to both secure facilities and
public buildings. In addition, because it is completely passive and non-intrusive, it diminishes issues involving permission to search. The Company developed the technology with the
support of the National Institute of Justice ("NIJ"), and developed four portal systems that were installed at a courthouse in Bannock County, Idaho. In 2000, the Company engineered its concealed
weapons detection portal hardware into a manufacturable product, and shipped a number of units as an OEM supplier.



Baggage and Package Screening.The market for baggage and package screening systems includes checked baggage inspection
for civil aviation, and package inspection at postal facilities and secure facilities. The market for checked baggage explosive detection systems is discussed in "Item
1BusinessExplosive Detection SystemsMarket" above. Several units of the Company's QScan products were delivered to the FAA in 1998, the U.S. Navy in 1999 and the
FAA in 2000.

Landmine Detection Market.According to DARPA, for the last 60 years, a sharply increasing percentage of
American soldiers have been killed or wounded by landmines. From World War II to Somalia, the percentage of American casualties caused by landmines has grown from 2.5 percent in World War II to
26 percent in Somalia. Still today, mine detection methods continue to depend primarily on soldiers manually probing the earth. Jane's Mines and Mine Clearance, 3rd edition,
1998-99, estimates there are up to 60 million landmines buried across four continents, making landmine detection a humanitarian issue as well as a military issue.

Landmine Detection Customers.From the commencement of the landmine detection program in April 1997 through
December 31, 2000, Quantum received $36.0 million in research and development funding from various U.S. government departments and agencies, including $27.0 million in 2000. The
initial funding was from DARPA and the Office of Naval Research to demonstrate the detection and false alarm performance of QR technology. The more recent funding is part of a three year program to
develop a vehicle mounted system for the U.S. Army, and a two year program for the Office of Naval Research to develop a man-portable, backpack system for the United States Marine Corps.
The Company currently has no customers for landmine detection systems other than the U.S. Government.

11

---



Export Control.The Company is subject to risks associated with regulations relating to the export of defense articles.
In particular, the Company's landmine detection systems are deemed to be regulated defense articles subject to export control by the U.S. Department of State. Exports may be prohibited or limited to a
small number of countries, even for purposes of demonstration and further data collection and development.

Weapons Detection.The market for weapons detection systems includes law enforcement and facilities security, including
airports, schools, courthouses, prisons, government buildings, banks and corporate headquarters. Four of the Company's concealed weapons detection portals are installed and operating at a courthouse
in Bannock County, Idaho.

Distribution.The Company seeks government funding through the grant application process. The application process
involves a team comprising senior research and development employees and senior management. The Company markets its commercialized products through a marketing manager and a direct sales person,
working with research and development employees to prepare and present proposals.

Public Agency Contract and Budget Risks.Substantially all of the Company's Quantum customers to date have been public
agencies or quasi-public agencies. In contracting with public agencies, the Company is subject to public agency contract requirements which vary from jurisdiction to jurisdiction and which are subject
to budgetary processes and expenditure constraints. Budgetary allocations for explosive detection systems are dependent, in part, upon governmental policies which fluctuate from time to time in
response to political and other factors. In addition, public agency bidding processes have been and may continue to be protracted, and typically contain provisions that permit cancellation in the
event that funds are unavailable to the public agency.



Baggage and Package Screening.The competition for baggage and package screening systems includes conventional
x-ray scanners and trace detection systems for carry-on baggage inspection for civil aviation, and package inspection at postal facilities and secure facilities. The
competition for checked baggage explosive detection systems is discussed in "Item 1BusinessEDSCompetition" above. The Company's
QR technology is more accurate than conventional x-ray bulk detection techniques which predict the explosives presence by measuring object density or atomic number.

Landmine Detection.The market for landmine detection is becoming increasingly competitive with the growing interest in
military and humanitarian demining. The Company believes that this will continue to prompt the development of new technologies, which will be the basis of competition in the market because there are
greater differences between technologies than between companies using the same technology. The current competing technologies include:



12

---



Weapons Detection.Many companies manufacture conventional weapons detection systems that use active magnetic
technology. These systems emit electro-magnetic radiation and measure variations in the resulting magnetic field. The Company's passive magnetic technology measures variations in the earth's natural
magnetic field without emitting additional radiation, so it does not interfere with other equipment, and its operation cannot be detected. The Company's system is also innovative because it displays a
video image of the area being scanned with potential weapons highlighted on the image.



The Company measures its backlog of government contracts as awards from government agencies which have been funded, but for which services have not yet been
performed. At December 31, 2000, the Company's Quantum government contracts backlog was approximately $23.6 million, compared to approximately $3.2 million at December 31,
1999. The Company expects to fill the December 31, 2000 backlog in 2001 and 2002.



WoodVision.The Company is developing a log scanning system based on CT technology to optimize the value and yield of
harvested timber. Development versions were evaluated during ongoing field trials that started in 1999. Where suitable, the log scanner will share components with the Company's EDS products. The
Company anticipates features of the log scanner will include the ability to locate hidden defects and undesirable wood properties, and thereby identify high quality logs for sale and indicate sawing
solutions to increase the quantity of high value wood products from the log.

Inovec.The Company's current Inovec products include the StereoScan 3-D log scanner and grade
optimizer, YieldMaster headrig carriage optimizer, LogMaster small log optimizer, TrimMaster trim optimizer, CantMaster cant optimizer and
WaneMaster edger optimizer. These systems use laser scanners to measure the size of logs or sawn wood before further sawing. Using proprietary optimizing algorithms, the systems develop
cutting solutions to maximize the volume of usable wood, and then control the relative positions of the saw and the wood. In addition to providing generally a one year parts and service warranty, the
Company offers fee-based primary and back-up service contracts to its customers.



WoodVision Market.The worldwide lumber industry generates revenues of $75 billion per year. Worldwide, there
are over 6,000 sawmills. Sawmills will purchase capital equipment to improve yield, efficiency and value. Given the significant payback for sawmills when the value of the lumber is increased by even a
small percentage, the Company believes there is a very significant market opportunity for CT based scanners.

WoodVision Customers.During the first phase of development the Company expects to sell principally to the planted wood
market. Sellers of planted wood will gain a significant competitive advantage by using a CT based system to locate hidden defects and undesirable wood properties such as twist, and thereby identify
high quality logs for sale. The Company also expects to further develop systems for sawmills worldwide. Sawmills will gain a significant competitive advantage by using a CT

13

---

based system to locate hidden defects such as knots and cracks and thereby adjust the cutting pattern to increase the quality and quantity of the sawn wood.

Inovec Customers.The Company believes that the market for optimization systems will remain competitive as the lumber
industry seeks to maximize the value obtained from the current and foreseeable supply of usable timber. Over 600 of the Company's Inovec laser scanners and other optimization systems have been
installed in over 300 sawmills worldwide.

Distribution.The Company seeks potential customers for its products under development primarily though development and
test agreements. The agreements are negotiated by a team of senior research and development employees and senior management. The Company markets its Inovec products both directly through internal
sales personnel and indirectly through authorized agents, distributors and systems integrators. As of December 31, 2000, the Company employed a total of seven employees in sales and marketing.
For sales through its authorized representatives and distributors, the Company generally is directly involved in developing proposal documents and negotiating contract terms.

Wood Industry Purchasing.The Company's Wood revenues will be subject to the ability and willingness of customers in
the wood industry to purchase capital equipment to improve productivity, yield and finished product value. The factors that affect the decision to purchase such capital equipment include the demand
for wood products, market prices for logs and finished wood products, labor costs, interest rates and other general economic factors. In addition, the revenues related to the Company's CT scanners for
the wood industry will be subject to the acceptance of new technology by customers in the wood industry. There are no assurances that market conditions in the wood industry will be favorable for the
sale of capital equipment, or that the Company's new products will be accepted by the industry in any particular time, or at all.



WoodVision.The Company's high throughput CT technology creates a three dimensional image of the log, producing a
virtual log which is an exact representation of the log's internal structure, including all knots, cracks and grain patterns. Through advanced and proprietary image processing, logs can be graded and
optimized for the ideal cutting pattern, therefore allowing the customer to mitigate the impact of previously unseen defects and maximize the value of a log's yield. Competing technologies include:



Inovec.Inovec competes with a number of manufacturers of laser based optimization and scanning systems. The Company
believes that it has an advantage because it is focused on scanning and optimization systems compared to many competitors who are focussed on general sawmill equipment and who also offer some scanning
or optimization equipment.



The Company measures its backlog of Inovec product and services revenues as orders for systems and upgrades for which contracts or purchase orders have been
signed, but which have not yet been shipped, and as orders for maintenance related to product support for which contracts have been

14

---

signed, but maintenance service has not yet been performed. The Company typically ships its Inovec products within three to twelve months after receiving an order. However, such shipments may be
affected by delays which occur in the delivery of components to Inovec or customers' readiness to accept delivery for reasons of site preparation or otherwise. At December 31, 2000, the
Company's Inovec product and service revenues backlog was approximately $1.8 million. The Company expects to fill these orders and perform these services in 2001. The Company acquired Inovec
effective January 1, 2000 and thus had no Inovec backlog at December 31, 1999. In the first quarter of 2001, the Company received orders valued at approximately $2.2 million for
Inovec laser based optimization and scanning systems. The Company had no WoodVision backlog at December 31, 2000 and December 31, 1999.



In all segments, the Company's manufacturing operations consist primarily of: (1) materials management; (2) assembly, test and quality control of
parts and components subassemblies; and (3) final system testing. Using the Company's designs and specifications, subcontractors assemble mechanical and electrical sub-components.
The Company performs final assembly and test of systems, including configuration to customers' orders and testing with current release software, prior to shipment. The Company's manufacturing
organization has expertise in mechanical, electrical, electronic and software assembly and testing. In addition, because quality and reliability over the life of the Company's products are vital to
customer satisfaction and repeat purchases, the Company believes its quality assurance program is a key component of its business strategy.



The Company outsources certain manufacturing processes, including standard and build-to-print fabricated parts such as mechanical
sub-assemblies, sheet metal fabrication, cables and assembled printed circuit boards. The Company generally purchases major contracted assemblies from single source suppliers to ensure
high quality, prompt delivery and low cost. The Company reviews its single source procurements on a case by case basis, where feasible, and has qualified second sources for certain contracted
assemblies. Although to date the Company has not experienced any significant delays in obtaining any of its single source assemblies, the Company cannot assure that it will not face shortages of one
or more of these systems in the future.



Proprietary Technology.The Company's performance depends in part upon its proprietary technology. In the United
States, the Company relies upon patents, copyrights and trade secrets for the protection of the proprietary elements of its products. The Company cannot assure, however, that the Company could enforce
such patents, trade secrets or copyrights.

EDS U.S. Patents.The Company has two United States patents for automatic concealed object detection systems using a
pre-scan stage as used in the CTX Series. These patents expire in the years 2010 and 2011. Outside the United States, the time period for filing foreign counterparts of these patents has
expired, and the Company did not seek or obtain patent protection. The patents have not prevented competition from CT based competitors because such system does not use a pre-scan stage.
The Company also has a patent application pending covering a number of new features contained in the CTX 9000 model. In accordance with the terms of the Company's development contracts with the FAA,
the U.S. Government has rights to use certain of the Company's proprietary technology developed after the award of the Contracts and funded by the contracts. The U.S. Government may use such rights to
produce or have produced for the U.S. Government competing products using such technology.

15

---

EDS Foreign Patents.Outside the United States, the Company does not have patent protection (except to the extent of
licenses held under patents owned by Imatron Inc.) and has relied to date primarily on software copyrights and trade secrets for the protection of its proprietary technology. The absence of
foreign counterparts to the Patents could adversely affect the Company's ability to prevent a competitor from using technology similar to technology used in the CTX Series.

Imatron License.In connection with the formation of the Company, the Company obtained an exclusive, worldwide, and
fully-paid license, as amended, from Imatron, Inc. regarding its patents and know-how related to (a) scanners for the inspection of mail, freight, parcels,
baggage and wood products, and (b) compact medical scanners for military field applications. The license allows the Company to develop, manufacture and sell systems based on a different type of
CT technology than is currently incorporated in the Company's CTX Series. The Company, in exchange, granted to Imatron an exclusive, worldwide, perpetual and fully paid license under the Company's
then existing or future patents and know-how to permit Imatron to utilize such technology in medical scanners other than compact medical scanners for military field applications. The
license expires in 2009.

Quantum Patents.In the United States, the Company relies on licenses, patents, copyrights and trade secrets held by
the Company for the protection of the proprietary elements of its Quantum products. The Company also relies on its ability to obtain research and development contracts in the areas of electromagnetic
sensing and detection. In connection with its QR technology, the Company utilizes three key QR patents from the Naval Research Laboratory and has been granted an exclusive license to commercialize the
technology, including landmine detection. The license expires in 2009.
Additionally, the Company has been granted ten patents related to Quantum technology, with additional patents pending, and has developed a significant amount of know-how in the magnetic
sensing and detection areas. These patents and know-how enable field deployable security systems to be designed and cost-effectively manufactured.

Quantum Licenses.The Company has also been granted a non-exclusive license by International Business
Machines Corporation (IBM). The license covers certain patented and non-patented proprietary software and know-how related to electro-magnetic sensing and detection. The
license grant expires in 2009.

Wood.The Company has a patent application pending covering a number of new features related to the design and use of
the CT based log scanner. The Company has a patent, issued in the US and Canada, for certain technology used in Inovec log cutting optimization systems. The Company cannot assure that the patents
would be effective in preventing competition from other CT and laser based scanning and optimizing systems.

Protection.The Company generally enters into confidentiality agreements with each of its employees, and on a
case-by-case basis enters into similar agreements with distributors, customers, and potential customers. In addition, the Company limits access to distribution of its software,
documentation and other proprietary information. The Company cannot assure that these agreements will not be breached, that the Company will have adequate remedies for any breach, or that the
Company's trade secrets will not otherwise become known to or independently developed by others. The Company cannot assure that the steps taken by the Company to protect its proprietary technology
will be adequate or that its competitors will not be able to develop similar, functionally equivalent or superior technology. Although the Company believes that its intellectual property rights are
valuable, the Company also believes that product support, and customer relations are of greater competitive significance because of the rapid pace of technological change and evolving customer
requirements.

Dependence on Proprietary Technology.The Company in the past has received, and from time to time in the future may
receive, communications from third parties alleging infringements by the Company or one of its suppliers of patents or other intellectual proprietary rights owned by such third

16

---

parties. The Company cannot assure that any infringement claims (or claims for indemnification resulting from infringement claims against third parties, such as customers) will not be asserted against
the Company, resulting in expensive and protracted litigation.



Importance of Research and Development.The Company considers research and development to be a vital part of its
operating discipline and continues to dedicate substantial resources to research and development. At December 31, 2000 the Company had 132 full-time employees engaged in research
and development and product development activities, 47 for EDS, 49 for Quantum and 36 for Wood. The Company was also using the services of sixteen specialized contract employees and consultants in
this area. During the years ended December 31, 2000, 1999 and 1998, the Company spent $11.9 million, $11.2 million and $12.9 million, respectively, on research and
development activities, of which $0.9 million, $0.7 million and $3.6 million, respectively, were funded by the FAA and other agencies under development contracts and grants. The
Company has in backlog grants of $6.7 million for EDS research and development.

Enhance EDS Technology.The Company continues to make substantial investments to enhance the performance, functionality
and reliability of the CTX Series explosive detection systems, including developments to:



These
and other modifications or updated versions of the CTX Series may require FAA approval to retain certification or may require re-certification testing. The Company
cannot assure that any such modifications will be approved or, if required, certified by the FAA.

Broaden EDS Product Offerings.The Company is continuing its commitment to its "family" approach to explosive detection
by participating in the FAA's ARGUS program. This program is a four-phase competitive research and development program designed to develop a low-cost, automated explosive
detection system to scan checked baggage in small airports. The project specifies an explosive detection system that would be smaller and less expensive than the Company's CTX 2500 model. During Phase
I of the program, the Company developed an initial system design to meet the FAA's criteria for weight, size, and cost. In 2000, the Company was awarded funding of $7.7 million for Phase II
development of a prototype system. Two competitors also received grant awards to develop prototypes. The Company believes that its participation in Phases I and II and its long experience and leading
position in the field of certified EDS place it in good stead to receive additional grants under the further phases of the ARGUS program. However, there can be no assurance that the FAA will continue
to award ARGUS or other development grants to the Company.

17

---

Broaden EDS Technology Offerings.The Company believes that systems combining two or more technologies based on
different physical principles will be more robust, more cost effective and more difficult to defeat than single technology systems. For example, combining QR with dual-energy
X-ray results in a system with the ability to detect a wider range of explosives than an X-ray alone, with greater reliability, and with images to assist with threat resolution
following a QR-generated alarm. The Company is in the early development stage of these combined technologies.

Competition for FAA Grants.The U.S. Government currently plays an important role in funding the development of EDS
technology and sponsoring its deployment in U.S. airports. Through December 31, 2000, the Company had received $27.8 million from FAA grants and contracts. The Company is also aware that
certain other competitors in the EDS market have received FAA development grants. These grants include approximately $14.5 million to the Company's only CT based competitor, and funding to
another competitor to develop a new CT system for the ARGUS program. The Company cannot assure that additional research and development funds from the FAA will become available in the future or that
the Company will receive any such additional funds.

Broaden CT based Detection Applications.The Company believes that its CT detection technology can also be applied to
the detection of drugs and agricultural products at ports of entry, and to the detection of contraband entering prisons. The U.S. has deployed approximately 500 conventional x-ray
systems at border crossings and other points of entry. There are additional deployments around the world for the purpose of drug interdiction. The Company has determined that its CTX Series explosive
detection systems are able to detect illegal drugs and currency. By expanding the software library to specifically include the characteristics of controlled substances, the Company developed a
prototype CT based system for drug detection. In late 1999 and early 2000 the Company conducted trials for the United States Customs Service to evaluate the use of a truck-mounted CT based drug
detection system. The Company believes that a truck mounted CTX Series system could be sold for aviation security applications.

Weapons Detection.The Company is continuing the development of its passive magnetic concealed weapons detection
technology, currently developed for portal systems. The Company is exploring portable variations of this technology to detect weapons entering or leaving a specific area. The Company is also
developing a wand to screen people for both weapons and explosives.

Process Control.In 2000, the Company received a major contract from the U.S. Department of Energy to develop its
magnetic resonance technology to improve energy efficiency in process control applications. The Company is developing systems to accurately determine the moisture content of processed materials,
including lumber, wood products, paper pulp, food products, and fuels such as coal. Accurate measurements of moisture content are very important, since industrial drying operations consume large
quantities of energy, and small improvements in process efficiency result in significant cost and energy savings.

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

18

---

able to expand quickly enough to meet market demand or that new competitors will not enter the market.



As of December 31, 2000, the Company directly employed 335 people, of whom 132 were primarily engaged in research and development activities, 82 in
marketing and sales, customer support and field service, 59 in manufacturing, ten in quality and 52 in administration and finance. In addition, The Company utilized the services of 37
full-time consultants and temporary employees in 2000. Management believes that the Company's relationship with its employees is good.

EXECUTIVE OFFICERS OF THE REGISTRANT

The following sets forth certain information regarding the Company's executive officers:

Name

Age

PositionDr. Sergio Magistri

48

President and Chief Executive Officer, DirectorDonald E. Mattson

68

Senior Vice President and Chief Operating OfficerAlfred V. Larrenaga

53

Senior Vice President and Chief Financial OfficerDavid M. Pillor

46

Senior Vice President, Sales and Marketing, Director


Dr. Sergio Magistrihas served as President, Chief Executive Officer and Director of InVision since December 1992. From
June 1991 to November 1992, he was a Project Manager with AGIE, Switzerland, a manufacturer of high precision tooling equipment, responsible for all aspects of a family of new products
for high precision electro-erosion machining with sub-micron precision. From 1988 to June 1991, Dr. Magistri was a consultant to high technology companies. As a consultant,
Dr. Magistri was involved in the formation of InVision and the development of its business plan and of its technology. From 1983 to 1988, Dr. Magistri held various positions with
Imatron Inc., a CT medical scanner company, including as an Engineering Physicist and Manager of Advanced Reconstruction Systems, and
Director of Computer Engineering. Dr. Magistri holds a degree in Electrical Engineering and a doctorate in Biomedical Engineering from the Swiss Institute of Technology, Zurich, Switzerland.

Donald E. Mattsonhas served as Senior Vice President and Chief Operating Officer since November 2000. Mr. Mattson
previously served as Interim Vice President of Operations at InVision in 1998. In addition to his position at InVision, from 1992 to 2000, Mr. Mattson has been a management consultant,
including, among others, interim management assignments as chief executive officer of a computer distribution company, president of a disk drive sub-systems company and vice president of
operations of a tape drive manufacturing company. Prior to 1992, Mr. Mattson held senior management positions at Microware Distributors, Inc., Optical Data, Inc., Media Technology
Corporation, Verbatim Corporation, Memorex Corporation and Varian Associates. Mr. Mattson holds a bachelor's degree in Industrial Management and Technology and an MBA from the University of
California, Berkeley.

Alfred V. Larrenagahas served as Senior Vice President and Chief Financial Officer since June 1999. Prior to joining InVision,
Mr. Larrenaga served as Executive Vice President and CFO of Integrated Packaging Assembly Corporation, an independent semiconductor packaging foundry from 1997 to May 1999. From 1988 to
1997, Mr. Larrenaga was Senior Vice President, CFO and Secretary of Southwall Technologies Inc., a manufacturer of thin film materials. Prior to that, Mr. Larrenaga served as Vice
President and CFO of Asyst Technologies Inc., a manufacturer of equipment for the semiconductor industry, and was Controller of the Farinon Division of Harris Corporation. He is a Certified
Public Accountant and holds a bachelor's degree in accounting from Santa Clara University.

19

---

David M. Pillorjoined InVision in July 1994 as Vice President, Sales and Marketing. He has served as Senior Vice President,
Sales and Marketing since November 1995 and as a director since December 1999. From 1988 to July 1994, Mr. Pillor held various positions including Area Sales Manager,
National Sales Manager and Vice President of Sales of Technomed International, a medical products company. Mr. Pillor holds a Bachelor of Science degree in Chemistry from the University of
Maryland.



In addition to the risks discussed above, the Company is subject to the following risks:

History of Losses; No Assurance of Profitability.The Company commenced operations in September 1990, remained
in the development stage through 1994 and received its first revenues from product sales in
the first quarter of 1995. The Company experienced net losses for each year from inception through December 31, 1996. The year ended December 31, 1997 was the Company's first year of
profitability. The Company was profitable on an annual basis from 1997 to 1999 but it experienced losses in each of the last two quarters of 1999 and the first two quarters of 2000, and reported a
$1.8 million loss for the year ended December 31, 2000. As of December 31, 2000, the Company had an accumulated deficit of approximately $11.0 million. The Company cannot
assure that it will return to and maintain profitability. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of OperationsLiquidity and Capital
Resources."

Fluctuations in Operating Results.The Company's past operating results have been, and its future operating results
will be, subject to fluctuations resulting from a number of factors. These factors include:



The
Company also may choose to reduce prices or to increase spending in response to competition or to pursue new market opportunities, all of which may have a material adverse effect
on the Company's business, financial condition or results of operations. InVision's systems revenues in any period are derived from sales of multiple CTX Series systems to a limited number of
customers and are recognized upon shipment. The high sales price of units in the CTX Series means that minor variations in the number of orders, or in the timing of shipments, substantially affects
the Company's quarterly revenues. A significant portion of the Company's quarterly operating expenses are, and will continue to be, relatively fixed in nature. This means that revenue fluctuations
will cause the Company's quarterly and annual operating results to vary substantially. Accordingly, the Company believes that period-to-period comparisons of its results of
operations are not meaningful and cannot be relied upon as indicators of future performance. Because of all of the foregoing factors, the Company's operating results have from time to time in the past
been and may again in the future be below the expectations of public market analysts and investors. This failure to meet market expectation

20

---

has in the past and may again in the future result in a decline in the trading price of the Common Stock.

International Business.The Company markets its products to customers outside of the United States and, accordingly, is
exposed to the risks of international business operations, including unexpected changes in regulatory requirements, possible foreign currency controls, uncertain ability to protect and utilize its
intellectual property in foreign jurisdictions, tariffs or other barriers, difficulties in staffing and managing foreign operations, difficulties in obtaining and managing vendors and distributors,
and potentially negative tax consequences. International sales are subject to certain inherent risks including tariffs, embargoes and other trade barriers, staffing and operating foreign sales and
service operations and collecting accounts receivable.

Fluctuation In Exchange Rates.Fluctuations in currency exchange rates could cause the Company's products to become
relatively more expensive to customers in a particular country, leading to a reduction in sales or profitability in that country.

Product Liability Risks; Risk of Failure to Detect Explosives; Availability of Insurance.The Company's business
exposes it to potential product liability risks, which are inherent in the manufacturing and sale of explosive detection systems. There are many factors beyond the control of the Company that could
lead to liability claims, such as the reliability of the customer's operators, the training of the operators after the initial installation and training period, and the maintenance of the units by the
customers. For these and other reasons, including software and hardware limitations and malfunctions of the CTX Series, the Company cannot assure that the systems will detect all explosives hidden in
the luggage scanned. The Company does not believe that it would be liable for any such claims, but the cost of defending any such claims would be significant and any adverse determination may be in
excess of the Company's insurance coverage. Moreover, the failure of the CTX Series to detect an explosive would
also result in negative publicity which could have a material adverse effect on sales and may cause customers to cancel orders already placed, either of which could have a material adverse effect on
the Company's business, financial condition or results of operations. Many of the Company's customers require the Company to maintain insurance at certain levels. The Company currently has product
liability insurance in the amount of $150 million. The Company cannot assure that additional insurance coverage, if required by customers or otherwise, could be obtained on acceptable terms, if
at all.

Concentration Of Ownership; Control By Management.As of December 31, 2000, the Company's principal stockholder,
HARAX Holding, S.A. ("HARAX"), held approximately 20% of the Company's common stock, and the present directors and executive officers of the Company and their affiliates, in the aggregate,
beneficially owned approximately 14% of the outstanding common stock, in each case including shares issuable pursuant to stock options exercisable within 60 days of December 31, 2000.
Consequently, HARAX together with the Company's directors and executive officers, acting in concert, have the ability to significantly affect the election of the Company's directors and have a
significant effect on the outcome of corporate actions requiring stockholder approval. In addition, HARAX, acting alone, will have the power to significantly affect matters relating to the Company's
affairs and business.

Anti-Takeover Provisions.The Company's Restated Certificate of Incorporation contains certain provisions
that may discourage bids for the Company. This could limit the price that certain investors might be willing to pay in the future for shares of the Common Stock.



Financial information about foreign and domestic sales are stated in the attached Consolidated Financial Statements, Note 2, Summary of Significant
Accounting Policies.

21

---

ITEM 2. PROPERTIES

The Company's principal corporate office and EDS manufacturing facility is located in Newark, California, which consists of approximately 95,000 square feet
under a lease which expires in May 2007. The Company has an option to extend the lease for five years. Approximately 16,000 square feet is subleased under an agreement which expires
March 31, 2001. Management intends to continue to sublease this space for the foreseeable future. The Company's Quantum office is located in San Diego, California, which consists of
approximately 36,000 square feet under a lease which expires May 23, 2002.
The Company's Inovec office and manufacturing facility is located in Eugene, Oregon, which consists of approximately 7,500 square feet under a month to month lease and approximately 5,000 square feet
in a separate building under a lease which expires at the end of March 2001. The Company is currently negotiating a renewal of this lease. The Company leases an additional approximately 3,850
square foot facility in Eugene, Oregon, for WoodVision and Inovec operations, under a two year lease expiring August 31, 2002. Management believes that these facilities will be sufficient to
satisfy its administrative and manufacturing needs for the foreseeable future.

ITEM 3. LEGAL PROCEEDINGS

In July 2000, the Company entered into a settlement agreement (the "Settlement Agreement") that settled an action brought on January 7, 1999 by
Vivid Technologies, Inc. ("Vivid") in Superior Court of the State of California for the County of San Diego against InVision, Quantum, ESI International, Inc. ("ESI"), Robert Price and
Sandra Price (collectively, "Defendants"). Vivid asserted causes of action for (1) misappropriation of trade secrets; (2) inducing breach of contract; (3) interference with
contractual relations; (4) statutory unfair competition; (5) common law unfair competition; (6) interference with prospective economic advantage; (7) defamation; and
(8) declaratory relief. The complaint was filed by Vivid following efforts by the Company and ESI, a private investigator hired by the Company, to investigate the alleged theft of intellectual
property from the Company by a former key employee hired by Vivid and to bring certain evidence to the attention of the Federal Bureau of Investigation and the United States Attorney for the Southern
District of California. As part of the Settlement Agreement, Vivid represented that it is no longer pursuing QR technology and agreed not to pursue QR technology for two years from the date of the
agreement. Vivid further agreed to file a request for dismissal of the complaint without prejudice which would automatically convert to a dismissal with prejudice on the second anniversary of
the Settlement Agreement. Similarly, the Company agreed that their voluntary dismissal of a federal court action (which had been filed but not served) against Vivid based on the alleged theft would
also automatically convert to a dismissal with prejudice in two years. Management believes that the terms of the Settlement Agreement will not have a material adverse effect on the Company's business,
financial condition or results of operations.

In
addition to the foregoing matter, the Company may be involved, from time to time, in other litigation, including litigation relating to claims arising out of its operations in the
normal course of business. The Company is not currently a party to any legal proceedings, the adverse outcome of which, in management's opinion, individually or in aggregate would have a material
adverse effect on the Company's business, financial condition or results of operations.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable.

22

---



PART II.

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS



The Company's common stock trades on the Nasdaq National Market under the symbol "INVN." The following table sets forth, for the periods indicated, the high
and low bid quotations of the Company common stock as reported on the Nasdaq National Market. These over-the-counter quotations reflect inter-dealer prices, without retail
markup, markdown or commission, and may not necessarily represent the sales prices in actual transactions.

Quarter ended 2000

April 2

July 2

October 1

December 31High

$
93/8

$
73/16

$
41/2

$
325/32Low

$
35/8

$
39/16

$
33/8

$
15/16Quarter ended 1999

March 31

June 30

September 30

December 31High

$
67/8

$
67/16

$
53/8

$
53/8Low

$
43/4

$
43/8

$
33/8

$
35/16


On
March 26, 2001, the closing price of the Company's Common Stock on the Nasdaq National Market was $3.00 per share. On March 26, 2001, there were approximately 307 stockholders of
record of the Company's Common Stock.

In
May 1998, the Board of Directors of the Company adopted a stock repurchase program, in which management of the Company is authorized to repurchase up to 500,000 shares of
the Company's common stock on the open market at prevailing market prices or in negotiated transactions off the market. As of December 31, 1999, the Company had repurchased approximately
200,500 shares of its common stock. The Company has not repurchased any shares since December 1999 and the Company cannot assure that all of such shares will ultimately be repurchased by the
Company.



The Company has never declared or paid cash dividends on its Common Stock and it is currently the intention of the Board of Directors not to pay cash dividends
in the foreseeable future. The Company plans to retain earnings, if any, to finance its operations and product development. In addition, the Company's bank credit facility prohibits the payment of
dividends without the lender's consent.



From January 1, 2000 through December 31, 2000, the Company sold the following amounts of unregistered securities in connection with its
acquisition of Inovec, Inc., in reliance on Section 4(2) of the Securities Act of 1933:

(1) On
November 2, 2000, the Company issued 139,530 shares of common stock to Andrew Nowak for partial consideration for the acquisition of Inovec, Inc.,
of which 8,000 shares were directed by Mr. Nowak to be issued to seven individuals as gifts.
    (2) On November 2, 2000, the Company issued 54,049 shares of common stock to Alan Bazzaz for partial consideration for the acquisition of Inovec, Inc.
    (3) On November 2, 2000, the Company issued 28,091 shares of common stock to Kerry Wilson for partial consideration for the acquisition of Inovec, Inc.
    (4) On November 2, 2000, the Company issued 27,619 shares of common stock to Jeffrey Franklin for partial consideration for the acquisition of Inovec, Inc.

23

---

ITEM 6. SELECTED FINANCIAL DATA

The following table sets forth for the periods and the dates indicated certain consolidated financial data, which should be read in conjunction with "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements and notes thereto included elsewhere herein. The Company acquired
Inovec, Inc. ("Inovec"), effective January 1, 2000. This acquisition is being accounted for as a purchase and, accordingly, the results of operations of Inovec are only included in the
consolidated financial statements as of and for the year ended
December 31, 2000. In September 1997, the Company acquired Quantum Magnetics, Inc. ("Quantum") in a stock-for-stock transaction accounted for as a pooling
of interests; accordingly, all prior periods have been restated to include Quantum's results.

|                                                |                                     | Year Ended December 31,  |       
|----------------------------------------------- | ----------------------------------- | ------------------------ | ------
|
|
|Operations                                      |                                     |                          |       
|Revenues:                                       |                                     |                          |       
|                                                | Product revenues                    |                          | $     
|                                                | Service revenues                    |                          |       
|                                                | Government contract revenues        |                          |       
|                                                |                                     |                          |       
|                                                |                                     | Total revenues           |       
|                                                |                                     |                          |       
|Cost of revenues:                               |                                     |                          |       
|                                                | Product costs                       |                          |       
|                                                | Service costs                       |                          |       
|                                                | Government contract costs           |                          |       
|                                                |                                     |                          |       
|                                                |                                     | Total cost of revenues   |       
|                                                |                                     |                          |       
|                                                | Gross profit                        |                          |       
|                                                |                                     |                          |       
|Operating expenses:                             |                                     |                          |       
|                                                | Research and development(a)         |                          |       
|                                                | Selling, general and administrative |                          |       
|                                                | Acquisition costs                   |                          |       
|                                                |                                     |                          |       
|                                                |                                     | Total operating expenses |       
|                                                |                                     |                          |       
|Income (loss) from operations(b)                |                                     |                          | (2,138
|Interest expense(c)                             |                                     |                          | (195  
|Interest and other income, net                  |                                     |                          | 527   
|                                                |                                     |                          |       
|Income (loss) before provision for income taxes |                                     |                          | (1,806
|Provision for income taxes                      |                                     |                          |      
|                                                |                                     |                          |       
|Net income (loss)                               |                                     | $                        | (1,806
|                                                |                                     |                          |       
|Net income (loss) per share:                    |                                     |                          |       
|                                                | Basic                               |                          | $     
|                                                |                                     |                          |       
|                                                | Diluted                             |                          | $     
|                                                |                                     |                          |       
|Weighted average shares outstanding:            |                                     |                          |       
|                                                | Basic                               |                          |       
|                                                | Diluted                             |                          |       

24

---

|                   |                                                   | December 31,
|------------------ | ------------------------------------------------- | ------------
|
|
|Financial Position |                                                   |             
|                   | Cash, cash equivalents and short-term investments |             
|                   | Working capital                                   |             
|                   | Total assets                                      |             
|                   | Long-term obligations                             |             
|                   | Total stockholders' equity                        |             

---

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The discussion below contains forward-looking statements which involve risks and uncertainties. When used in this Annual Report on
Form 10-K, the words "anticipate," "believe," "estimate," and "expect" and similar expressions identify such forward-looking statements. The Company's actual results,
performance, or achievements could differ materially from the results expressed in, or implied by, these forward-looking statements. Factors that could cause or contribute to such differences include:



25

---





OVERVIEW

InVision Technologies, Inc. (the "Company") brings to market advanced detection and inspection products by adapting various medical and laboratory
technologies for government and commercial uses, such as security, defense and process control. The Company reports its financial information in three segments, Explosive Detection Systems ("EDS"),
Qauntum and Wood, based on types of technology and applications.

EDS.The Company develops, manufactures, markets and supports explosive detection systems for civil aviation security
based on advanced computed tomography ("CT") technology. The Company's products were the first automated explosive detection systems to be certified by the Federal Aviation Administration ("FAA") as
meeting its stringent requirements. The Company has sold 231 systems to the FAA, foreign aviation security agencies and domestic and foreign airports and airlines.

Quantum.The Company, through its wholly-owned subsidiary Quantum Magnetics, Inc., ("Quantum") develops for
commercialization patented and proprietary technology for inspection, detection and analysis of explosives and other materials. Quantum's products are based on passive magnetic sensing technology and
quadrupole resonance ("QR") technology, a form of magnetic resonance. Quantum receives grants from a variety of US government agencies for research and development of landmine detection,
carry-on luggage screening, concealed weapon detection, drug detection, and in-process materials inspection.

Wood.In February 2000, the Company announced the formation of its WoodVision division ("WoodVision") to develop
the Company's CT technology to optimize the value and yield of harvested timber. Previous studies indicated that CT technology can be applied to see inside a log before it is sawn. The Company
believes that a market for a product that does this exists. In connection with the formation of WoodVision, the Company acquired, as a wholly-owned subsidiary, Inovec, Inc. ("Inovec"),
effective as of January 1, 2000. Inovec manufactures, markets and supports advanced optimization equipment for sawmills based on laser scanning and other optimization technologies. Since
inception, Inovec has installed over 600 laser scanners and other optimization systems in over 300 sawmills worldwide. The transaction has been accounted for as a purchase and accordingly, the results
of operations of Inovec are only included in the consolidated financial statements as of and for the year ended December 31, 2000.

Research and development.The Company considers research and development to be a vital part of its operating discipline
and continues to dedicate substantial resources to research and development. At December 31, 2000 the Company had 132 full-time employees engaged in research and development, and
product development activities, 47 for EDS, 49 for Quantum and 36 for Wood. The Company was also using the services of 16 specialized contract employees and consultants in this area. During the years
ended December 31, 2000, 1999 and 1998, the Company spent $11.9 million, $11.2 million and $12.9 million, respectively, on research and development activities, of which
$0.9 million, $0.7 million and $3.6 million, respectively, were funded by the FAA and other agencies under development contracts and grants. The Company has in backlog grants of
$6.7 million for EDS research and development, primarily for the development of ARGUS, an FAA-sponsored program designed to develop a low-cost, automated explosive
detection system to scan checked baggage in small airports and low-traffic stations within larger airports. The Company has also expended significant efforts in the development of new wood scanning
products in 2000 and expects to continue investing heavily in the development of these products in the future.

Revenues.The Company's EDS product revenues have principally consisted, and the Company believes will continue to
consist, of orders of multiple units from a limited number of customers. While the number of individual customers may vary from period to period, the Company is nevertheless dependent upon these
multiple orders for a substantial portion of its revenues. The Company cannot

26

---

assure that it will obtain such multiple orders on a consistent basis. For the years ended December 31, 2000, 1999 and 1998, $30.8 million, $37.1 million and $37.9 million,
respectively, were generated from EDS sales to the Company's largest customer, the FAA, representing 38.9%, 63.5% and 53.8%, respectively, of the Company's total revenues. There were no other
significant customers who accounted for more than 10% of the Company's total revenues in 2000, 1999 and 1998.

The
Company markets its products and services both directly through internal sales personnel and indirectly through authorized agents, distributors and systems integrators. In the
United States, the Company markets its products and services primarily through direct sales personnel. Internationally, the Company utilizes both a direct sales force and authorized agents to sell its
products. For the years ended December 31, 2000, 1999 and 1998, international sales represented 26.2%, 14.7% and 30.2%, respectively, of the Company's total revenues.

The
sales cycle of the Company's CTX product line is often lengthy due to the protracted approval process that typically accompanies large capital expenditures and the time required
to manufacture, install and integrate the product. Typically, nine to twelve months may elapse between a new customer's initial evaluation of the Company's product line and the execution of a
contract. Another three months to a year may elapse prior to shipment of the product as the customer site is prepared and the system is manufactured. During this period the Company expends substantial
funds and management resources but recognizes no associated revenue.

The
Company recognizes EDS product revenue upon shipment unless extended acceptance criteria exist, in which case revenue is recognized upon achievement of such acceptance criteria.
The Company typically requires customer deposits in advance of shipment on customer purchase orders. Provision for estimated installation, training and warranty costs is recorded at the time revenue
is recognized and adjusted periodically based on historical and anticipated experience. Products typically carry a one-year warranty. The Company recognizes EDS service revenue for service
maintenance contracts ratably over the term of the agreements and for integration and other services as the services are performed.

The
Company's government contract revenue is substantially derived from Quantum activities performed under U.S. government contracts. These contracts are typically in the form of
cost-plus-fixed-fee or firm-fixed-price awards. The Company recognizes revenue on these contracts using the
percentage-of-completion method based on costs incurred to date as a percentage of total estimated costs at completion.

The
Company recognizes Wood product revenues from the sale of its control and automation systems of its Inovec subsidiary using the percentage-of-completion
method, based on costs incurred to date as a percentage of total estimated costs at completion.

27

---



The following table sets forth certain income and expenditure items from the Company's consolidated statements of operations expressed as a percentage of total
revenues for the periods indicated.

Year Ended December 31,2000

1999

1998Revenues:Product revenues

74.2
%
73.9
%
86.4
%Service revenues

12.4

7.8

3.4Government contract revenues

13.4

18.3

10.2Total revenues

100.0

100.0

100.0Cost of revenues:Product costs

49.7

42.6

46.4Service costs

8.2

6.3

3.2Government contract costs

9.9

13.2

7.4Total cost of revenues

67.8

62.1

57.0Gross profit

32.2

37.9

43.0Operating expenses:Research and development

13.9

17.9

12.1Selling, general and administrative

20.9

20.1

18.4Total operating expenses

34.8

38.0

30.5Income (loss) from operations

(2.6
)
(0.1
)
12.5Interest expense

(0.2
)
(0.4
)
(0.6
)Interest and other income, net

0.7

1.3

1.0Income (loss) before provision for income taxes

(2.1
)
0.8

12.9Provision for income taxes



0.1

1.6Net income (loss)

(2.1
)%
0.7
%
11.3
%




Revenues.The Company's revenues are primarily comprised of: (i) EDS product revenues, which include revenues
from sales of CTX systems and related accessories, and installation and configuration, and EDS service revenues, which include revenues from maintenance contracts related to product support,
integration and other services; (ii) Quantum government contract revenues, which include revenues primarily from research and development contracts utilizing QR and passive magnetic
technologies with government agencies and private entities and; (iii) Wood product revenues from the sales of control and automation systems for material processing equipment, primarily in the
wood products industry and related accessories, installation and configuration, and Wood service revenues from maintenance contracts related to product support, integration and other services.

EDS
product revenues were $46.5 million in 2000, an increase of 8.1% from the $43.0 million in 1999. This increase was primarily attributable to more system shipments
and more sales of the Company's higher priced CTX 9000DSi system in 2000. EDS service revenues were $8.3 million, an increase of 80.7% from the $4.6 million in 1999. The increase in
service revenues is primarily due to increased service contract revenue for new support and maintenance agreements for CTX systems for

28

---

which warranty periods expired during the year. The Company typically ships against a backlog of orders for its products. As of December 31, 2000, the Company had in backlog EDS equipment
orders and service agreements of $8.1 million, primarily consisting of service agreements. Additionally, in the first quarter of 2001, the Company received orders valued at approximately
$10.5 million from the FAA and an international customer for multiple explosive detection systems, accessories and service.

Quantum's
government contract revenues were $10.6 million and $10.7 million in 2000 and 1999, respectively. Revenues were relatively flat in 2000 compared to 1999,
reflecting an increase in efforts in the development of landmine detection technologies in 2000, offset by a decrease in other types of development efforts as government contracts and grants are
completed. As of December 31, 2000, the Company had Quantum government contract backlog of approximately $23.6 million, primarily for development of landmine detection technologies.

Wood
product revenues and service revenues were $11.9 million and $1.5 million in 2000, respectively. These revenues were primarily attributable to revenues from the
Inovec subsidiary acquired with an effective date of January 1, 2000. As of December 31, 2000, the Company had in backlog Inovec equipment orders and service agreements of
$1.8 million. In the first quarter of 2001, the Company received orders valued at approximately $2.2 million for laser-based optimization and scanning systems for lumber manufacturing.
WoodVision is still developing the CT based log scanner and had no revenues or backlog as of December 31, 2000.

Gross Profit.Cost of EDS product revenues primarily consists of purchased materials procured for use in the assembly
of the Company's products, as well as manufacturing labor and overhead, and warranty. Cost of EDS service revenues primarily consists of direct labor and materials and customer support overhead. In
any given period the Company's gross profit for products and services may be affected by several factors, including revenue mix, volume of systems manufactured in a given period, product
configuration, location of the installation and complexity of integration into various environments.

Gross
profit for EDS products was $15.8 million in 2000, a decrease of 13.3% from the $18.2 million in 1999. Gross margins for EDS products in 2000 and 1999 were 33.9%
and 42.3%, respectively. The
decrease in gross profit is primarily due to lower margins on the sale of CTX 9000 systems in 2000, primarily due to competitive pricing factors with international customers and higher manufacturing
costs related to the initial production process of the CTX 9000 systems. Gross profit for EDS services increased to $2.6 million in 2000 from $0.9 million in 1999. Gross margins for EDS
services were 30.9% and 19.7%, respectively. The increase in gross profit is primarily due to increased service contract revenue for new support and maintenance agreements for CTX systems for which
warranty periods expired during the year.

Cost
of Quantum government contract revenues primarily consists of direct labor, purchased materials, subcontract labor and the applicable overhead required to support government
funded activities. Gross profit for government contracts was $2.8 million in 2000, a 5.8% decrease from the $3.0 million in 1999. Gross margins were 26.2% and 27.6%, respectively. The
decrease in gross profit is primarily due to the change in mix of types of services and materials, which carry different margins, in 2000 compared to 1999.

Gross
profit for Wood product revenues and service revenues were $3.6 million and $0.7 million in 2000, respectively. Gross margins for Wood products and services in
2000 and 1999 were 30.0% and 48.2%, respectively. The gross profit is primarily generated from Inovec product and service revenues during the year.

Research and Development.Research and development expenses consist primarily of compensation paid to personnel engaged
in research and development activities, amounts paid for outside services, and costs of materials utilized in the development of hardware products, including prototype units.

29

---

Research and development expenditures by the Company are partially offset by amounts reimbursed by the FAA and other government agencies and private entities under research and development contracts
and grants. These services are provided on a cost basis.

Gross
research development expenses were $11.9 million in 2000, an increase of 6.8% from the $11.2 million in 1999. Of these amounts in 2000 and 1999,
$0.9 million and $0.7 million, respectively, were funded by research and development contracts and grants from the FAA and other government agencies and private entities. Net research
and development expenses were $11.0 million in 2000, an increase of 5.7% compared to the $10.4 million in 1999. As a percentage of revenues, net research and development expenses were
13.9% and 17.9% in 2000 and 1999, respectively. The increase in gross research and development expenses is primarily due to engineering services, materials and labor costs incurred for the development
of WoodVision products and also due to expenses incurred by the Company's newly acquired subsidiary, Inovec. These increases are partially offset by reduced expenses incurred by Quantum as more
resources were expended on research and development efforts that were
funded under government contracts and grants and less incurred on internal research and development activities. The decrease as a percentage of revenues is primarily due to higher revenues in 2000
compared to the prior year. As of December 31, 2000, the Company had in backlog research and development contracts and grants of $6.7 million.

Selling, general and administrative.Selling, general and administrative expenses consist primarily of compensation
paid to direct and indirect sales and marketing personnel, administrative personnel, including directors, consultant fees, professional service fees, insurance, travel, selling and distribution costs,
and other general expenses.

Selling,
general and administrative expenses were $16.6 million in 2000, an increase of 40.7% from the $11.8 million in 1999. As a percentage of total revenues, selling,
general and administrative expenses were 20.9% and 20.1% in 2000 and 1999, respectively. The increase in selling, general and administrative expenses was primarily the result of start-up
operating costs of WoodVision, the amortization expense of $0.7 million for goodwill and other intangibles acquired with the purchase of Inovec, and also expenses incurred by Inovec in 2000.

Interest Expense.Interest expense decreased to $195,000 in 2000 from $227,000 in 1999. Interest expense in 2000 and
1999 resulted primarily from debt financing associated with the Company's working capital lines of credit, equipment term loans and capital leases. The decrease is primarily due to lower average debt
balances in 2000 compared to 1999.

Interest and Other Income (Expense), Net.Interest and other income (expense), net, decreased to $527,000 in 2000 from
$754,000 in 1999. The 2000 amount consists primarily of interest income on cash equivalents and short-term investments of $917,000, partially offset by other expense (net) of $390,000. The
1999 amount consists primarily of interest income on cash equivalents and short-term investments of $813,000, partially offset by other expense (net) of $59,000. The decrease in interest
income is primarily due to lower average cash balances in 2000 compared to the prior year.

Provision for Income Taxes.No tax provision or benefit was recorded for 2000. The Company recorded a provision for
income taxes of $67,000 in 1999. At December 31, 2000, the Company had federal net operating loss carryforwards of approximately $4.6 million available to reduce future federal taxable
income. The Company's net operating loss carryforwards expire from 2010 to 2012 and tax credit carryforwards expire from 2005 to 2018.



Revenues.EDS product revenues were $43.0 million in 1999, a decrease of 29.3% from the $60.9 million in
1998. This decrease was primarily attributable to fewer systems shipped in 1999 compared to the prior year. EDS service revenues were $4.6 million and $2.4 million in 1999 and 1998,

30

---

respectively. The increase in service revenues were primarily due to increased service contract revenues primarily due to the commencement of support and maintenance agreements for systems for which
warranty periods expired during the year.

Government
contract revenues were $10.7 million in 1999, an increase of 48.3% from the $7.2 million in 1998. This increase was primarily attributable to accelerated
activities related to landmine detection technologies in 1999.

Gross Profit.Gross profit for EDS product was $18.2 million in 1999 compared to $28.2 million in 1998.
Gross margins in 1999 and 1998 were 42.3% and 46.3%, respectively. The decrease in gross margins was primarily the result of lower margins on the sale of the CTX 9000 systems, which were made up of
higher per unit costs related to the start-up of the initial production process in the latter part of the year.

Gross
profit for government contracts was $3.0 million in 1999 compared to $2.0 million in 1998. Gross margins were 27.6% in 1999 and 1998. The increase in gross profit
was primarily due to the increased level of work on funded landmine detection technologies.

Research and Development.Net research and development expenses were $10.4 million in the year ended
December 31, 1999. Net research and development expenses would have been $9.3 million in 1998 without the capitalization of software development costs of $0.8 million. Software
development costs qualifying for capitalization were insignificant in 1999. In the third quarter of 1999, the Company began amortizing the capitalized software development costs using the
straight-line method over the forecasted units of production. Gross research and development expenses were $11.2 million in 1999, a decrease of 13.4% from the $12.9 million
in 1998, before considering the impact of software capitalization. Of these amounts in 1999 and 1998, $0.7 million and $3.6 million, respectively, were funded by research and development
contracts and grants from the FAA and other government agencies. As a percentage of total revenues, net research and development expenditures were 17.9% in 1999 compared to 12.1% in
1998. The increase of net research and development costs as a percentage of revenues was primarily the result of lower revenues in 1999 compared to the prior year. The decrease in gross research and
development expenditures in absolute dollars was primarily due to the completion of two significant development products in early 1999, specifically the development of the CTX 9000 and QScan 160, of
which the Company made its first sale of these products in 1999.

Selling, general and administrative.Selling, general and administrative expenses were $11.8 million in 1999, a
decrease of 9.5% from the $13.0 million in 1998. As a percentage of total revenues, selling, general and administrative expenses were 20.1% and 18.4% in 1999 and 1998, respectively. The
increase in selling, general and administrative expenses as a percentage of revenues was primarily the result of lower revenues in 1999 compared to the prior year. The decrease in selling, general and
administrative expenses in absolute dollars was primarily the result of a decrease in commission expense due to changes in the structure of sales incentive compensation plans and lower revenues in
1999 and continued efforts to reduce selling and administrative expenses during the year.

Interest Expense.Interest expense decreased to $227,000 in 1999 from $390,000 in 1998. Interest expense in 1999 and
1998 resulted primarily from debt financing associated with the Company's working capital lines of credit, equipment term loans and capital leases. The decrease was primarily due to payments made on
term loans and capital lease obligations and no new significant financing in 1999.

Interest and Other Income, Net.Interest and other income, net, increased to $754,000 in 1999 from $697,000 in 1998.
The 1999 amount consists primarily of interest income on short-term investments and interest bearing cash accounts of $813,000, partially offset by other expense of $59,000. The 1998
amount consists primarily of interest income on short-term investments and interest bearing cash accounts of $754,000, partially offset by other expense of $57,000.

31

---

Income Taxes.The Company's effective tax rate for 1999 and 1998 was 15% and 12%, respectively. The Company's effective
tax rate for 1999 and 1998 was lower than statutory tax rates primarily due to the utilization of net operating loss carryforwards.



The Company recorded noncash charges related to grants of stock options having exercise prices below the fair market value on the date of grant to employees
and directors in the amounts of $63,000, $68,000 and $68,000 in 2000, 1999 and 1998, respectively.



Since inception, the Company has financed its operations primarily through private sales of $16.5 million of preferred and common stock (of which
$5.6 million represents indebtedness converted to equity), the sale of $9.5 million of common stock in the Company's initial public offering in April 1996, the sale of
$21.2 million in the Company's follow-on offering in May 1997, and short-term borrowings under working capital lines of credit. At December 31, 2000, the
Company had $11.9 million in cash, cash equivalents and short-term investments, compared to $24.2 million at December 31, 1999. Working capital was
$37.7 million at December 31, 2000 compared to $40.9 million at December 31, 1999.

Net
cash used in operating activities was $9.2 million in 2000, compared to $17.0 million provided by operating activities in 1999. Cash used in operating activities in
2000 primarily resulted from a net loss of $1.8 million, a $10.5 million increase in accounts receivable, a $2.2 million increase in inventories and a $3.0 million decrease
in deferred revenues, partially offset by the $3.8 million non-cash effect of depreciation and amortization, a $4.0 million increase in accrued liabilities, and a
$0.6 million decrease in other current assets. Cash provided by operating activities in 1999 primarily resulted from net income of $0.4 million, the $3.0 million
non-cash effect from depreciation and amortization, a $16.2 million decrease in accounts receivable, a $1.7 million increase in accounts payable and a $1.6 million
increase in deferred revenues, partially offset by a $5.6 million increase in inventories and a $0.8 million decrease in accrued liabilities.

Net
cash provided by investing activities was $1.7 million in 2000, compared to $5.5 million used in investing activities in 1999. Net cash provided by investing
activities in 2000 primarily resulted from $5.9 million on sales of short-term investments partially offset by the cash payment of $1.5 million for the purchase of Inovec,
net of cash acquired, and $2.7 million in acquisitions of capital equipment. Net cash used in investing activities in 1999 primarily resulted from $3.9 million in purchases of
short-term investments (net of sales) and $1.7 million in acquisitions of capital equipment

Net
cash provided by financing activities was $1.1 million in 2000, compared to $3.7 million used in financing activities in 1999. Net cash provided by financing
activities in 2000 was primarily due to $0.9 million in net proceeds from borrowings of short-term debt and $0.7 million in proceeds from sales
under the employee stock purchase plan and exercises of incentive stock options, partially offset by $0.4 million in repayments of long-term debt financing. Net cash used in
financing activities in 1999 was primarily due to $3.9 million in repayments of debt financing (principally, short-term borrowings under the lines of credit), and
$0.3 million in the repurchase of 85,600 shares of the Company's Common Stock at prevailing market prices, partially offset by $0.5 million in proceeds from sales under the employee
stock purchase plan and exercises of incentive stock options.

In
November 2000, the Company renewed its two line of credit agreements with a bank. The first agreement provides for maximum borrowings in an amount up to the lower of 80% of
eligible domestic EDS receivables or $5.0 million. The second agreement is partially guaranteed by the Export-Import Bank of the United States and provides for maximum borrowings in an amount
up to the lower of: (a) the sum of 80% of eligible EDS export accounts receivable plus the lower of: (i) 70% of eligible

32

---

raw materials and work-in-process inventory designated for export customers; (ii) 60% of outstanding loans under this agreement, or; (iii) $2.0 million,
or; (b) $5.0 million. Borrowings under both agreements bear interest at the bank's prime rate plus 1.5% (11.0% at December 31, 2000) and are secured by EDS assets. The agreements
expire in November 2001 and require that the EDS segment maintain certain levels of tangible net worth and intercompany balances from its wholly-owned subsidiaries, and also prohibit the
Company from paying cash dividends. Proceeds of loans under both lines of credit may be used for general corporate purposes. At December 31, 2000, the Company had borrowings outstanding of
$0.9 million under the domestic EDS agreement. Additionally, the Company had outstanding guarantees to customers through issuance of letters of credit secured by the lines of credit totaling
$1.1 million and foreign exchange contracts for which a 10% reserve of $141,000 is secured by the lines of credit. The remaining available borrowing capacity under the lines of credit was
$5.3 million at December 31, 2000 based on eligible EDS accounts receivable and inventories as of that date.

The
Company previously borrowed against a committed equipment line of credit agreement with a bank, which converted into a term loan after draw down. Borrowings are secured by the
assets purchased or financed. At December 31, 2000, the Company had an outstanding $331,000 term loan due June 2003 and a $196,000 term loan due November 2001. The term loans bear
interest at the bank's prime rate plus 1.5% (11.0% at December 31, 2000).

As
of December 31, 2000, the Company had non-cancelable annual lease commitments in the amount of $1.6 million for 2001 and decreasing to $1.3 million
in 2005. See Note 8 of the Notes to the Consolidated Financial Statements in item 8 of this Annual Report on Form 10-K.

The
Company believes that existing cash, cash equivalents and short-term investments together with available borrowings under its lines of credits and funds expected to be
generated from operations will
be sufficient to finance its working capital and capital expenditure requirements for at least the next 12 months.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK



The Company's international system sales and maintenance contracts are generally denominated in U.S. dollars. In instances where there are significant
international system sales contracts denominated in a foreign currency, the Company enters into forward exchange contracts to mitigate foreign exchange risk. In 2000, the Company entered into forward
exchange contracts of approximately $6.3 million to hedge against foreign exchange risk for contracts with international customers, and at December 31, 2000, had outstanding contracts
totaling $1.4 million. The Company did not hedge any foreign exchange risk in 1999. Purchases of raw materials and other inventory components are primarily denominated in U.S dollars and when
purchased in foreign currencies, are generally made on an as needed basis. The Company has some advance purchase commitments in foreign currencies with a few European suppliers. The Company currently
does not hedge against these purchase commitments, as the foreign exchange rate fluctuations have not had a material adverse impact on these purchases; however, the Company will continue to monitor
the foreign exchange rates and enter into forward exchange contracts to mitigate foreign exchange risk as appropriate.

In
June 1998, the Financial Accounting Standards Board issued SFAS No. 133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging Activities." SFAS 133,
as amended, establishes accounting and reporting standards for derivative instruments and hedging activities and is effective for fiscal years beginning after June 15, 2000. The Company adopted
SFAS 133 effective January 1, 2001. SFAS 133 requires companies to recognize all derivatives as either assets or liabilities on the balance sheet and measure them at fair value.
Gains and losses resulting from changes in fair value would be accounted for depending on the use of the derivative and whether it is designated and qualifies for

33

---

hedge accounting. The adoption of SFAS 133 did not have a material effect on the Company's consolidated results of operations at January 1, 2001.

Certain
costs of providing warranty and maintenance services for systems sold to foreign countries are denominated in local currencies. To the extent exchange rates fluctuate, it
could become more
expensive to provide these services. To date, these costs have not been significant, however, the Company expects they will increase as the Company's installed base increases.

The
impact of inflation has not been material on the Company's operations or liquidity to date.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The Company's Consolidated Financial Statements and Notes thereto appear on pages F-1 to F-24 of this Annual Report on
Form 10-K and are incorporated by reference here. Supplementary financial information with respect to each of the quarters in the years ended December 31, 2000 and 1999 are
set forth in Note 15 to the Notes to the Consolidated Financial Statements.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

On April 24, 2000, the Company's Board of Directors approved a change in the Company's independent accountants for the current fiscal year, from
PricewaterhouseCoopers LLP ("PwC") to Deloitte & Touche LLP ("Deloitte & Touche") due to an independence issue. The brother of the Company's Chief Financial Officer is a partner with PwC
and was transferred in April 2000 to an office within 500 miles of the Company's headquarters, rendering PwC unable to act as the Company's independent accountants pursuant to longstanding
interpretive guidance regarding independence issued by the Securities and Exchange Commission ("SEC"). The decision to change accountants was approved by the audit committee of the Board of Directors,
and by the Board of Directors, effective April 24, 2000. The reports of PwC for the fiscal years ended December 31, 1998 and December 31, 1999, contained no adverse opinion,
disclaimer of opinion or qualification or modification as to uncertainty, audit scope or accounting principles. During the fiscal years ended December 31, 1998 and December 31, 1999, and
the interim period from January 1, 2000 through April 24, 2000, there were no disagreements between the Company and PwC on any accounting principles or practices, financial statement
disclosures or auditing scope or procedures, which, if not resolved to the satisfaction of PwC would have caused it to make reference to the subject matter of the disagreement in connection with its
reports. The Company has provided PwC with a copy of the disclosures contained herein and has filed as an exhibit hereto the response of PwC to the disclosures set forth in the section. The Company
did not consult with Deloitte & Touche during the fiscal years ended December 31, 1998 and December 31, 1999, and the interim period from January 1, 2000 through
April 24, 2000, on any matter which was the subject of any disagreement or any reportable event or on the application of accounting principles to a specified transaction, either completed or
proposed.

34

---



PART III.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required by this Item 10 is incorporated by reference to the information contained in the Proxy Statement to be filed no later than
April 30, 2001 in connection with the solicitation of proxies for the Company's Annual Meeting of Stockholders to be held June 21, 2001 (the "Proxy Statement") under the captions
"Proposal No. 1Election of Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance." For the information required as to Executive Officers, see
"Part I. Item 1. BusinessExecutive Officers of the Registrant," which information is incorporated by reference here.

ITEM 11. EXECUTIVE COMPENSATION

The information required by this Item 11 is incorporated by reference to the information contained in the Proxy Statement under the captions "Executive
Compensation" and "Compensation Committee Interlocks and Insider Participation."

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by this Item 12 is incorporated by reference to the information contained in the Proxy Statement under the caption "Security Ownership
of Certain Beneficial Owners and Management."

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this Item 13 is incorporated by reference to the information contained in the Proxy Statement under the caption "Certain
Transactions."

35

---

PART IV.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)(1) Financial Statements

The consolidated financial statements required by this item are submitted in a separate section beginning on page F-1 immediately following the
signature page of this report and are incorporated by reference here.

Deloitte & Touche LLP, Independent Auditors' Report

F-1Report of PricewaterhouseCoopers LLP, Independent Accountants

F-2Consolidated Balance Sheets as of December 31, 2000 and 1999

F-3Consolidated Statements of Operations for the Years Ended December 31, 2000, 1999 and 1998

F-4Consolidated Statements of Cash Flows for the Years Ended December 31, 2000, 1999 and 1998

F-5Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 2000, 1999 and 1998

F-6Notes to Consolidated Financial Statements

F-7


(a)(2) Financial Statement Schedule

IIValuation
and Qualifying Accounts

Schedules
not listed above have been omitted because they are not applicable or the required information is shown in the Consolidated Financial Statements or in the notes thereto.

(a)(3) Exhibits

|Exhibit
Number |  | Description                                                                                                                                                                                                                                    
|-------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2.1            |  | Agreement and Plan of Merger and Reorganization dated as of February 23, 2000, among InVision Technologies, Inc., a Delaware corporation, InVision Acquisition Corporation, a Delaware corporation, and Inovec, Inc., an
Oregon Corporation (7)
|2.2            |  | Form of Escrow Agreement between InVision, Merger Sub, the Shareholders and Greater Bay Trust Company, dated February 23, 2000 (7)                                                                                                             
|3.1            |  | Amended and Restated Certificate of Incorporation of the Registrant. (1)                                                                                                                                                                       
|3.2            |  | Bylaws of Registrant, as amended. (2)                                                                                                                                                                                                          
|4.1            |  | Reference is made to Exhibits 3.1 and 3.2.                                                                                                                                                                                                     
|10.1           |  | Technology License Agreement, dated September 11, 1990, by and between the Registrant and Imatron, Inc. (1)                                                                                                                                    
|10.2           |  | Registrant's Equity Incentive Plan, as amended (3)(5)                                                                                                                                                                                          
|10.3           |  | Registrant's 1996 Employee Stock Purchase Plan, as amended (3) (5)                                                                                                                                                                             
|10.4           |  | Registrant's 2000 Equity Incentive Plan (3)(5)                                                                                                                                                                                                 
|10.12          |  | Lease, dated as of February 11, 1997, between the Registrant and WHLNF Real Estate L.P. (4)                                                                                                                                                    
|10.13          |  | Purchase Agreement, dated as of December 24, 1996, between the Registrant and the U.S. Federal Aviation Administration. (4)                                                                                                                    
|10.22          |  | Key Employee Agreement, dated April 22, 1994, between the registrant and Sergio Magistri, and amendment thereto, dated October 16, 1995. (4) (5)                                                                                               
|10.23          |  | Key Employee Agreement, dated March 1, 1996, between the Registrant and David M. Pillor. (4) (5)                                                                                                                                               

36

---

|10.34 |  | Amendment No. 1 to Technology License Agreement between the Registrant and Imatron Inc. dated September 11, 1990 (6)                                                                                                     
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.35 |  | Key Employee Agreement dated May 27, 1999, between the Registrant and Alfred V. Larrenaga. (5)(6)                                                                                                                        
|10.36 |  | Form of Indemnity Agreement between the Registrant and each of Sergio Magistri, Tim Black, Alfred V. Larrenaga, David Pillor, Giovanni Lanzara, Bruno Trezza, Douglas Boyd and Morris Busby dated November 1, 1999 (5)(6)
|10.38 |  | Registrant's 2000 Non-Officer Equity Incentive Plan, adopted February 14, 2000 (8)                                                                                                                                       
|10.39 |  | Loan and Security Agreement, dated November 8, 2000, between the Registrant and Silicon Valley Bank (9)                                                                                                                  
|10.40 |  | Loan and Security Agreement (Exim Program), dated November 8, 2000, between the Registrant and Silicon Valley Bank (9)                                                                                                   
|10.41 |  | Key Employment Agreement dated November 28, 2000, between the Registrant and Donald E. Mattson. (5)                                                                                                                      
|16.1  |  | Letter from PricewaterhouseCoopers LLP, the Registrant's Prior Independent Accountants                                                                                                                                   
|23.1  |  | Consent of Deloitte & Touche LLP, Independent Auditors                                                                                                                                                                   
|23.2  |  | Consent of PricewaterhouseCoopers LLP, Independent Accountants                                                                                                                                                           

---

Notes to Exhibits

37

---



SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Annual Report on
Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized, on the 28th day of March 2001.

| |  | INVISION TECHNOLOGIES, INC.
| |  | ---------------------------
| |  | By:                        

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

|Signature                                 |  | Title                                                                                         |  | Date          
|----------------------------------------- |  | --------------------------------------------------------------------------------------------- |  | --------------
|                                          |  |                                                                                               |  |               
|/s/SERGIO MAGISTRISergio Magistri         |  | President, Chief Executive Officer and Director(Principal Executive Officer)                  |  | March 28, 2001
|/s/ALFRED V. LARRENAGAAlfred V. Larrenaga |  | Senior Vice President and Chief Financial Officer(Principal Financial and Accounting Officer) |  | March 28, 2001
|/s/GIOVANNI LANZARAGiovanni Lanzara       |  | Chairman of the Board of Directors                                                            |  | March 28, 2001
|/s/DOUGLAS P. BOYDDouglas P. Boyd         |  | Director                                                                                      |  | March 28, 2001
|/s/BRUNO TREZZABruno Trezza               |  | Director                                                                                      |  | March 28, 2001
|/s/MORRIS BUSBYMorris Busby               |  | Director                                                                                      |  | March 28, 2001
|/s/DAVID M. PILLORDavid M. Pillor         |  | Senior Vice President, Sales and Marketing, and Director                                      |  | March 28, 2001

38

---

INDEPENDENT AUDITORS' REPORT

To
the Board of Directors and Stockholders of
InVision Technologies, Inc.
Newark, California

We
have audited the accompanying consolidated balance sheet of InVision Technologies, Inc. and subsidiaries (the "Company") as of December 31, 2000, and the related
consolidated statements of operations, stockholders' equity, and cash flows for the year then ended. Our audit also included the financial statement schedule for the year ended December 31,
2000 listed in the Index at Item 14(a)(2). These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial statement schedule based on our audit.

We
conducted our audit in accordance with auditing standards generally accepted in the United States of America. 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 audit provides a reasonable basis for our opinion.

In
our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of InVision Technologies, Inc. and subsidiaries at
December 31, 2000, and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.
Also, in our opinion, such financial statement schedule for the year ended December 31, 2000, when considered in relation to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.

/s/DELOITTE & TOUCHE LLP

DELOITTE &
TOUCHE LLP
San Jose, California
February 9, 2001

F-1

---

REPORT OF INDEPENDENT ACCOUNTANTS

To
the Board of Directors and Stockholders of
InVision Technologies, Inc.

In
our opinion, the consolidated financial statements listed in Item 14(a) present fairly, in all material respects, the financial position of InVision
Technologies, Inc. and its subsidiaries at December 31, 1999, and the results of their operations and their cash flows for each of the two years in the period ended December 31,
1999 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in Item 14(a) presents
fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement
schedule are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We
conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

/s/PRICEWATERHOUSECOOPERS LLP

PricewaterhouseCoopers
LLP
San Jose, California
February 9, 2000

F-2

---

InVision Technologies, Inc.

Consolidated Balance Sheets

(In thousands, except share data)

|                                       |                                                                                                                       | December 31,               |                                           
|-------------------------------------- | --------------------------------------------------------------------------------------------------------------------- | -------------------------- | ------------------------------------------
|
|Assets                                 |                                                                                                                       |                            |                                           
|Current assets:                        |                                                                                                                       |                            |                                           
|                                       | Cash and cash equivalents                                                                                             |                            | $                                         
|                                       | Short-term investments                                                                                                |                            |                                           
|                                       | Accounts receivable, net                                                                                              |                            |                                           
|                                       | Inventories                                                                                                           |                            |                                           
|                                       | Other current assets                                                                                                  |                            |                                           
|                                       |                                                                                                                       |                            |                                           
|                                       |                                                                                                                       | Total current assets       |                                           
|Property and equipment, net            |                                                                                                                       |                            | 6,741                                     
|Intangible assets, net                 |                                                                                                                       |                            | 4,412                                     
|Other assets                           |                                                                                                                       |                            | 540                                       
|                                       |                                                                                                                       |                            |                                           
|                                       |                                                                                                                       | Total assets               |                                           
|                                       |                                                                                                                       |                            |                                           
|Liabilities and stockholders' equity   |                                                                                                                       |                            |                                           
|Current liabilities:                   |                                                                                                                       |                            |                                           
|                                       | Accounts payable                                                                                                      |                            | $                                         
|                                       | Accrued liabilities                                                                                                   |                            |                                           
|                                       | Deferred revenue                                                                                                      |                            |                                           
|                                       | Short-term debt                                                                                                       |                            |                                           
|                                       | Current maturities of long-term obligations                                                                           |                            |                                           
|                                       |                                                                                                                       |                            |                                           
|                                       |                                                                                                                       | Total current liabilities  |                                           
|                                       |                                                                                                                       |                            |                                           
|Long-term obligations                  |                                                                                                                       |                            | 1,861                                     
|                                       |                                                                                                                       |                            |                                           
|Commitments and contingencies (Note 8) |                                                                                                                       |                            |                                           
|Stockholders' equity:                  |                                                                                                                       |                            |                                           
|                                       | Preferred stock, no par value, 5,000,000 shares authorized; no shares issued and outstanding                          |                            |                                           
|                                       | Common stock, $0.001 par value, 20,000,000 shares authorized; 12,613,000 and 12,190,000 shares issued and outstanding |                            |                                           
|                                       | Additional paid-in capital                                                                                            |                            |                                           
|                                       | Deferred stock compensation expense                                                                                   |                            |                                           
|                                       | Accumulated deficit                                                                                                   |                            |                                           
|                                       | Treasury stock, at cost (201,000 shares)                                                                              |                            |                                           
|                                       |                                                                                                                       |                            |                                           
|                                       |                                                                                                                       | Total stockholders' equity |                                           
|                                       |                                                                                                                       |                            |                                           
|                                       |                                                                                                                       |                            | Total liabilities and stockholders' equity
|                                       |                                                                                                                       |                            |                                           

The
accompanying notes are an integral part of these consolidated financial statements.

F-3

---

InVision Technologies, Inc.

Consolidated Statements of Operations

(In thousands, except per share data)

|                                                |                                     | Year Ended December 31,  |       
|----------------------------------------------- | ----------------------------------- | ------------------------ | ------
|
|Revenues:                                       |                                     |                          |       
|                                                | Product revenues                    |                          | $     
|                                                | Service revenues                    |                          |       
|                                                | Government contract revenues        |                          |       
|                                                |                                     |                          |       
|                                                |                                     | Total revenues           |       
|                                                |                                     |                          |       
|Cost of revenues:                               |                                     |                          |       
|                                                | Product costs                       |                          |       
|                                                | Service costs                       |                          |       
|                                                | Government contract costs           |                          |       
|                                                |                                     |                          |       
|                                                |                                     | Total cost of revenues   |       
|                                                |                                     |                          |       
|                                                | Gross profit                        |                          |       
|                                                |                                     |                          |       
|Operating expenses:                             |                                     |                          |       
|                                                | Research and development            |                          |       
|                                                | Selling, general and administrative |                          |       
|                                                |                                     |                          |       
|                                                |                                     | Total operating expenses |       
|                                                |                                     |                          |       
|Income (loss) from operations                   |                                     |                          | (2,138
|Interest expense                                |                                     |                          | (195  
|Interest and other income, net                  |                                     |                          | 527   
|                                                |                                     |                          |       
|Income (loss) before provision for income taxes |                                     |                          | (1,806
|Provision for income taxes                      |                                     |                          |      
|                                                |                                     |                          |       
|Net income (loss)                               |                                     | $                        | (1,806
|                                                |                                     |                          |       
|Net income (loss) per share:                    |                                     |                          |       
|                                                | Basic                               |                          | $     
|                                                |                                     |                          |       
|                                                | Diluted                             |                          | $     
|                                                |                                     |                          |       
|Weighted average shares outstanding:            |                                     |                          |       
|                                                | Basic                               |                          |       
|                                                | Diluted                             |                          |       

The
accompanying notes are an integral part of these consolidated financial statements.

F-4

---

InVision Technologies, Inc.

Consolidated Statements of Cash Flows

(In thousands)

|                                                          |                                                                                                    | Year Ended December 31,                                  |       
|--------------------------------------------------------- | -------------------------------------------------------------------------------------------------- | -------------------------------------------------------- | ------
|
|Cash flow from operating activities:                      |                                                                                                    |                                                          |       
|                                                          | Net income (loss)                                                                                  |                                                          | $     
|                                                          | Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |                                                          |       
|                                                          |                                                                                                    | Depreciation and amortization                            |       
|                                                          |                                                                                                    | Amortization of capitalized software development costs   |       
|                                                          |                                                                                                    | Amortization of intangible assets                        |       
|                                                          |                                                                                                    | Loss on disposal of fixed assets                         |       
|                                                          |                                                                                                    | Bad debt expense                                         |       
|                                                          |                                                                                                    | Stock compensation expense                               |       
|                                                          | Changes in assets and liabilities:                                                                 |                                                          |       
|                                                          |                                                                                                    | Accounts receivable                                      |       
|                                                          |                                                                                                    | Inventories                                              |       
|                                                          |                                                                                                    | Other current assets                                     |       
|                                                          |                                                                                                    | Other noncurrent assets                                  |       
|                                                          |                                                                                                    | Accounts payable                                         |       
|                                                          |                                                                                                    | Accrued liabilities                                      |       
|                                                          |                                                                                                    | Deferred revenues                                        |       
|                                                          |                                                                                                    | Other long-term obligations                              |       
|                                                          |                                                                                                    |                                                          |       
|                                                          | Net cash provided by (used in) operating activities                                                |                                                          |       
|Cash flow from investing activities:                      |                                                                                                    |                                                          |       
|                                                          |                                                                                                    | Purchases of property and equipment                      |       
|                                                          |                                                                                                    | Proceeds from (purchases of) short-term investments, net |       
|                                                          |                                                                                                    | Purchase of subsidiary, net of cash acquired             |       
|                                                          |                                                                                                    | Capitalized software development costs                   |       
|                                                          |                                                                                                    |                                                          |       
|                                                          | Net cash provided by (used in) investing activities                                                |                                                          |       
|Cash flow from financing activities:                      |                                                                                                    |                                                          |       
|                                                          |                                                                                                    | Net proceeds from (repayments of) short-term debt        |       
|                                                          |                                                                                                    | Proceeds from long-term debt                             |       
|                                                          |                                                                                                    | Repayments of long-term debt                             |       
|                                                          |                                                                                                    | Proceeds from issuance of common stock                   |       
|                                                          |                                                                                                    | Repurchase of common stock                               |       
|                                                          |                                                                                                    |                                                          |       
|                                                          | Net cash provided by (used in) financing activities                                                |                                                          |       
|Net change in cash and cash equivalents for the year      |                                                                                                    |                                                          | (6,374
|Cash and cash equivalents at beginning of year            |                                                                                                    |                                                          | 18,282
|                                                          |                                                                                                    |                                                          |       
|Cash and cash equivalents at end of year                  |                                                                                                    | $                                                        | 11,908
|                                                          |                                                                                                    |                                                          |       
|Supplemental disclosures of cash flow information:        |                                                                                                    |                                                          |       
|                                                          | Interest paid                                                                                      |                                                          | $     
|                                                          | Taxes paid                                                                                         |                                                          | $     
|Supplemental disclosures of noncash financing activities: |                                                                                                    |                                                          |       
|                                                          | Capital lease obligations incurred for the purchase of new equipment                               |                                                          | $     
|                                                          | Liabilities assumed in acquisition of subsidiary                                                   |                                                          | $     
|                                                          | Issuance of common stock in connection with acquisition of subsidiary                              |                                                          | $     
|                                                          | Stock payable in connection with acquisition of subsidiary                                         |                                                          | $     

The accompanying notes are an integral part of these consolidated financial statements.

F-5

---

InVision Technologies, Inc.
Consolidated Statements of Stockholders' Equity
(In thousands)

|                                                     |  | Common Stock |  |   |    |  |   |        |  | Treasury Stock |      |   |  
|---------------------------------------------------- |  | ------------ |  | - | -- |  | - | ------ |  | -------------- | ---- | - | -
|
|
|Balance at December 31, 1997                         |  | 11,932       |  | $ | 12 |  | $ | 56,602 |  | $              | (199 | ) | $
|Issuance of common stock                             |  | 18           |  |   |   |  |   |       |  |                |     |   |  
|Amortization of deferred stock compensation          |  |             |  |   |   |  |   |       |  |                | 68   |   |  
|Exercise of common stock options                     |  | 145          |  |   |   |  |   | 192    |  |                |     |   |  
|Shares issued under the employee stock purchase plan |  | 87           |  |   |   |  |   | 578    |  |                |     |   |  
|Repurchase of common stock                           |  |             |  |   |   |  |   |       |  |                |     |   |  
|Net income                                           |  |             |  |   |   |  |   |       |  |                |     |   |  
|                                                     |  |              |  |   |    |  |   |        |  |                |      |   |  
|Balance at December 31, 1998                         |  | 12,182       |  |   | 12 |  |   | 57,372 |  |                | (131 | ) |  
|Amortization of deferred stock compensation          |  |             |  |   |   |  |   |       |  |                | 68   |   |  
|Exercise of common stock options                     |  | 105          |  |   |   |  |   | 98     |  |                |     |   |  
|Shares issued under the employee stock purchase plan |  | 104          |  |   |   |  |   | 440    |  |                |     |   |  
|Repurchase of common stock                           |  |             |  |   |   |  |   |       |  |                |     |   |  
|Net income                                           |  |             |  |   |   |  |   |       |  |                |     |   |  
|                                                     |  |              |  |   |    |  |   |        |  |                |      |   |  
|Balance at December 31, 1999                         |  | 12,391       |  |   | 12 |  |   | 57,910 |  |                | (63  | ) |  
|Amortization of deferred stock compensation          |  |             |  |   |   |  |   |       |  |                | 63   |   |  
|Exercise of common stock options                     |  | 63           |  |   |   |  |   | 336    |  |                |     |   |  
|Shares issued under the employee stock purchase plan |  | 111          |  |   |   |  |   | 333    |  |                |     |   |  
|Issuance of common stock related to an acquisition   |  | 249          |  |   | 1  |  |   | 1,092  |  |                |     |   |  
|Net loss                                             |  |             |  |   |   |  |   |       |  |                |     |   |  
|                                                     |  |              |  |   |    |  |   |        |  |                |      |   |  
|Balance at December 31, 2000                         |  | 12,814       |  | $ | 13 |  | $ | 59,671 |  | $              |     |   | $
|                                                     |  |              |  |   |    |  |   |        |  |                |      |   |  

The
accompanying notes are an integral part of these consolidated financial statements.

F-6

---

INVISION TECHNOLOGIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. THE COMPANY

InVision Technologies, Inc. (the "Company") brings to market advanced detection and inspection products by adapting various medical and laboratory
technologies for government and commercial uses, such as security, defense and process control. The Company develops, manufactures, markets and supports systems based on advanced computed tomography
("CT") technology for explosive detection systems for civil aviation security, for log scanning for the wood products industry and for drug detection applications. The Company's wholly-owned
subsidiary, Quantum Magnetics, Inc. ("Quantum") develops for commercialization patented technologies, such as magnetic resonance and passive magnetic sensing, for landmine and weapons detection
and other applications. The Company's Wood segment, including the Company's wholly-owned subsidiary, Inovec, Inc. ("Inovec"), develops, manufactures, markets and supports technologies for
scanning, optimization and control systems for the forest products industry.

The
Company was incorporated in Delaware in 1990. Its headquarters and principal manufacturing facilities are located in Newark, California. The Company acquired Quantum as a
wholly-owned subsidiary in 1997. Quantum is a California corporation located in San Diego, California. The Company acquired Inovec as a wholly owned subsidiary effective January 1, 2000. Inovec
is a Delaware corporation, with its headquarters and manufacturing facilities located in Eugene, Oregon.

EDS.The Company develops, manufactures, markets and supports explosive detection systems for civil aviation security
based on advanced CT technology. The Company's products were the first automated explosive detection system, to be certified by the Federal Aviation Administration ("FAA") as meeting its stringent
requirements. The Company has sold 231 systems to the FAA, to foreign aviation security agencies and to domestic and foreign airports and airlines.

Quantum.The Company, through its wholly-owned subsidiary Quantum Magnetics, develops for commercialization patented
and proprietary technology for inspection, detection and analysis of explosives and other materials. Quantum's products are based on passive magnetic sensing technology and quadrupole resonance ("QR")
technology, a form of magnetic resonance. Quantum receives grants from a variety of US government agencies for research and development of military and humanitarian landmine detection,
carry-on luggage screening, concealed weapon detection, drug detection, and in-process materials inspection.

Wood.In February 2000, the Company announced the formation of its WoodVision division ("WoodVision") to develop
the Company's CT technology to optimize the value and yield of harvested timber. Previous studies indicated that CT technology can be applied to see inside a log before it is sawn. The Company
believes that a market for a product that does this exists. In connection with the formation of WoodVision, the Company acquired, as a wholly-owned subsidiary, Inovec, Inc. effective as of
January 1, 2000 (see Note 3). Inovec manufactures, markets and supports advanced optimization equipment for sawmills based on laser scanning and other optimization technologies. Since
inception, Inovec has installed over 600 laser scanners and other optimization systems in over 300 sawmills worldwide.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES



The consolidated financial statements include the financial statements of the Company and its wholly-owned subsidiaries, after the elimination of intercompany
accounts and transactions. The

F-7

---

Company's preparation of these consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, 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.

Certain
prior year amounts have been reclassified to conform to the current year presentation.



Share information for all periods presented has been retroactively adjusted to reflect a 1-for-11 reverse stock split of Common Stock
and Preferred Stock effected on March 15, 1996, and a 2-for-1 Common Stock dividend effected on February 7, 1997.



The Company considers all liquid investments purchased with an original maturity of three months or less to be cash equivalents.



Short-term investments consist primarily of commercial paper with original maturities at date of purchase beyond three months and less than
12 months. Such short-term investments are carried at cost, which approximates fair market value, due to the short period of time to maturity.



Revenue from EDS product sales is recognized upon shipment unless extended acceptance criteria exist, in which case revenue is recognized upon completion of
such acceptance criteria. Provision for estimated installation, training and warranty costs is recorded at the time revenue is recognized and adjusted periodically based on historical and anticipated
experience. Revenue from EDS service maintenance contracts is recognized ratably over the term of the agreements, and for integration and other services, as the services are performed. Deferred
revenue arises from advance payments received
from customers for systems to be delivered within the next year and for maintenance service not yet performed.

Revenue
from Quantum government contracts and from Inovec product sales of the automation and control systems is recognized using the percentage-of-completion
method based on costs incurred to date as a percentage of total estimated costs at completion. Deferred revenue is recorded as advance payments are received for work not yet performed.

In
December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition," which provides guidance on the
recognition, presentation and disclosure of revenue in financial statements filed with the Securities and Exchange Commission. SAB 101 outlines the basic criteria that must be met to recognize revenue
and provides guidance for disclosures related to revenue recognition policies. SAB 101 is effective for the fiscal quarter beginning October 2, 2000, however earlier adoption is permitted. The
adoption of SAB 101 did not have a material impact on the consolidated financial statements.

F-8

---



Inventories are stated at the lower of cost or market; cost is determined on a first-in, first-out basis, and includes materials, labor
and overhead.



Property and equipment are recorded at cost. Depreciation is computed using the straight-line method based upon the estimated useful lives of the
assets, which range from two to seven years, or the lease term of the respective assets, if applicable.



The Company has patents, licenses, developed technologies, acquired workforce, goodwill and other intangible assets totaling $4.4 million and
$0.3 million at December 31, 2000 and 1999, respectively, net of accumulated amortization of $0.8 million and $86,000, respectively. The Company's excess of purchase cost over the
fair value of net assets acquired was $2.3 million at December 31, 2000, net of accumulated amortization of $0.2 million. Identifiable intangible assets and goodwill are being
amortized over their estimated useful lives on a straight-line basis over three to ten years. Amortization expense was $0.7 million, $24,000 and $30,000 for the years ended
December 31, 2000, 1999 and 1998, respectively. The Company periodically re-evaluates goodwill and other intangibles based on undiscounted operating cash flows whenever significant
events or changes occur which might impair recovery of recorded asset costs.



The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," which
prescribes the use of the asset and liability method whereby deferred tax asset or liability account balances are calculated at the balance sheet date using current tax laws and rates in effect.
Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized.



Research and development costs are charged to operations as incurred. Contractually reimbursable costs for certain research and development activities are
reflected as a reduction to research and development expense in the period the related costs are incurred.



The Company capitalizes internally generated software development costs in accordance with Statement of Financial Accounting Standards No. 86 ("SFAS
86"), "Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed." SFAS 86 requires capitalization of certain software development costs after technological feasibility
has been established. Software development costs qualifying for capitalization were not material in 2000 and 1999. In 1998, the Company capitalized software development costs of $803,000, which are
included in other current assets and other noncurrent assets at December 31, 2000 and 1999. The Company began amortizing the capitalized software development based on the ratio of units sold
during the years to the total

F-9

---

forecasted units of sales. Amortization expense was $171,000 and $50,000 in 2000 and 1999, respectively. No amortization expense was recorded in 1998 because the product was not yet available for
general release to customers.



The Company grants stock options for a fixed number of shares to employees with an exercise price equal to the fair value of the shares at the date of grant.
The Company accounts for employee stock-
based compensation in accordance with Accounting Principles Board Opinion No. 25 ("APB 25"), "Accounting for Stock Issued to Employees."



The Company's ability to timely deliver its products is dependent upon the availability of quality components and subsystems used in these products. The
Company depends in part upon subcontractors to manufacture, assemble and deliver certain items in a timely and satisfactory manner. The Company obtains certain components and subsystems from single or
a limited number of sources. A significant interruption in the delivery of such items could have a material adverse effect on the Company's financial condition and results of operations.



In 1998, the Company adopted Statement of Financial Accounting Standards No. 130 ("SFAS 130"), "Reporting Comprehensive Income." This Statement
establishes standards for reporting and displaying comprehensive income and its components (revenues, expenses, gains and losses) in a full set of general-purpose financial statements. Such items may
include foreign currency translation adjustments, unrealized gains/losses from investing and hedging activities, and other transactions. The Company has no comprehensive income other than net income
(loss) for the periods presented in these consolidated financial statements.



Statement of Financial Accounting Standards No. 131 ("SFAS 131"), "Disclosures about Segments of an Enterprise and Related Information," requires
disclosures of segment information under a "management" approach. The management approach designates the internal organization that is used
by management for making operating decisions and assessing performance as the source of the Company's reportable segments. SFAS 131 also requires disclosures about products and services,
geographic areas, and major customers. The adoption of SFAS 131 did not affect results of operations or financial position of the Company. Prior year's segment information has been presented to
reflect the Company's organizational structure in 2000.



In June 1998, the Financial Accounting Standards Board issued SFAS No. 133 ("SFAS 133"), "Accounting for Derivative Instruments and
Hedging Activities." SFAS 133, as amended, establishes accounting and reporting standards for derivative instruments and hedging activities and is effective for fiscal years beginning after
June 15, 2000. The Company adopted SFAS 133 effective January 1, 2001. SFAS 133 requires companies to recognize all derivatives as either assets or liabilities on the
balance

F-10

---

sheet and measure them at fair value. Gains and losses resulting from changes in fair value would be accounted for depending on the use of the derivative and whether it is designated and qualifies for
hedge accounting. The adoption of SFAS 133 did not have a material effect on the Company's consolidated results of operations at January 1, 2001.

As
of December 31, 2000, the Company had $1.4 million of aggregate foreign currency forward exchange contracts. The fair value of these financial instruments was not
material at December 31, 2000. There were no forward exchange contracts outstanding at December 31, 1999.



Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and accounts receivable. The
Company limits the amount of credit exposure of cash balances by maintaining its accounts in high credit quality financial institutions. At December 31, 2000, the Company has accounts
receivable from customers (including research and development reimbursements from the FAA and other government agencies) located in the United States, Europe, Middle East, Pacific Rim and other areas
of $17.3 million, $3.1 million, $1.4 million, $0.5 million and $0.2 million, respectively. The Company performs various evaluations of its customers' financial
condition and credit worthiness. At December 31, 2000 and 1999, the allowance for bad debts was $302,000 and $171,000, respectively. At December 31, 2000, one customer accounted for
54.7% of total accounts receivable. No other individual customer accounted for more than 10% of accounts receivable at December 31, 2000.

The
Company believes the recorded value of financial instruments, including cash and cash equivalents, accounts receivable and long-term debt, approximate fair value at
each balance sheet date.

The
Company's total revenues are denominated in U.S. dollars. Significant customers which represented 10% or more of total revenues for the respective periods were as follows:

Year Ended
December 31,2000

1999

1998FAA

42
%
67
%
57
%DARPA

2
%
11
%
3
%


The
Company markets its products both internationally and domestically. Total revenues by geographic region are as follows (in thousands):

Year Ended December 31,2000

1999

1998United States

$
58,441

$
49,830

$
49,171Europe


11,939


3,084


12,907Pacific Rim


5,239


2,979


2,792Middle East


1,773


450


5,624Other


1,754


2,093


Total Worldwide Sales

$
79,146

$
58,436

$
70,494


F-11

---



Basic earnings per share is computed by dividing income available to common stockholders by the weighted-average common shares outstanding for the period.
Diluted earnings per share reflect the weighted-average common shares outstanding plus the potential effect of dilutive securities or contracts which are convertible to common shares such as options,
warrants, convertible debt and preferred stock (using the treasury stock method).

The
following is a reconciliation between the components of the basic and diluted net income (loss) per share calculations for the periods presented below (in thousands, except per
share data):

|                                       |                                                                         | Year Ended December 31, |  
|-------------------------------------- | ----------------------------------------------------------------------- | ----------------------- | -
|
|
|Basic net income (loss) per share:     |                                                                         |                         |  
|                                       | Income (loss) available to common stockholders                          |                         | $
|Effect of dilutive securities: Options |                                                                         |                         | 
|                                       |                                                                         |                         |  
|Diluted net income (loss) per share:   |                                                                         |                         |  
|                                       | Income (loss) available to common stockholders plus assumed conversions |                         | $
|                                       |                                                                         |                         |  

The
computation of diluted net loss per share for the year ended December 31, 2000 does not include shares issuable upon exercise of options of 1,046,222 and issuance of common
stock related to the acquisition of Inovec payable April 2001 and 2002 based on average share prices prior to scheduled payment dates, because their effect would have been anti-dilutive.

NOTE 3. ACQUISITION OF INOVEC, INC.

Effective January 1, 2000, the Company acquired Inovec, Inc., a manufacturer of advanced optimization equipment for increasing the yield of the
forest products industry for $5.2 million in cash and stock, payable over the next two years. The Company paid $2.4 million in cash and issued 249,000 shares of common stock to the
former shareholders of Inovec as the first two installments of the purchase price. The remaining obligation payable of $1.7 million is payable in stock to the former shareholders in
April 2001 and 2002 and is based on average share prices prior to the scheduled payment dates. In addition, the Company is contingently liable under the purchase agreement in the event that
Inovec achieves certain operating milestones during the years ended December 31, 2000 and 2001. At December 31, 2000, Inovec had achieved certain of these milestones and an additional
$0.5 million was recorded as additional purchase price and will be paid in cash and stock in April 2001. An additional $0.7 million would be payable upon the achievement of
certain milestones at the end of 2001.

F-12

---

The transaction has been accounted for as a purchase, and accordingly, the results of operations of Inovec are only included in the consolidated financial statements for the year
ended December 31, 2000. The Company allocated the purchase price based on the fair value of assets acquired and liabilities assumed. Portions of the purchase price, including intangible
assets, were identified by independent appraisers utilizing accepted valuation procedures and techniques. These intangible assets include approximately $1.5 million for developed technologies,
$0.7 million for the acquired workforce, $50,000 for covenants not to compete and the remaining $2.5 million for goodwill. These intangibles are being amortized over their estimated
useful lives ranging from three to ten years.

The
following unaudited pro forma data summarize the results of operations for the year ended December 31, 1999 as if the acquisition of Inovec occurred on January 1,
1999. The pro forma data give effect to actual operating results prior to the acquisition, adjusted to include the pro forma effect of amortization of intangibles and income taxes. These pro forma
amounts do not purport to be indicative of the results that would have actually been obtained if the acquisition occurred on January 1, 1999, or that may be obtained in the future.

Year ended
Dec. 31, 1999
(unaudited)(in thousands, except
per share data)Total revenues

$
66,235Net loss

$
(188
)Basic net loss per share

$
(0.02
)Diluted net loss per share

$
(0.02
)


NOTE 4. RESEARCH AND DEVELOPMENT CONTRACTS AND GRANTS

The Company has been awarded various research and development contracts and grants by the FAA and other government agencies to share in the costs of developing
and enhancing the Company's products. During 2000, 1999 and 1998, the Company was entitled to reimbursements of $0.9 million, $0.7 million and $3.6 million, respectively, under
research and development contracts and grants. Such reimbursements have been reflected as a reduction to research and development expense in each period presented. Billings under such research and
development contracts and grants are rendered monthly on the basis of actual costs incurred. At December 31, 2000 and 1999, the related receivable balances from these contracts and grants were
$626,000 and $47,000, respectively.

NOTE 5. DEBT



In November 2000, the Company renewed its two line of credit agreements with a bank. The first agreement provides for maximum borrowings in an amount up
to the lower of 80% of eligible domestic EDS receivables or $5.0 million. The second agreement is partially guaranteed by the Export-Import Bank of the United States and provides for maximum
borrowings in an amount up to the lower of: (a) the sum of 80% of eligible EDS export accounts receivable plus the lower of: (i) 70% of eligible raw materials and
work-in-process inventory designated for export customers; (ii) 60% of outstanding loans under this agreement, or; (iii) $2.0 million, or;
(b) $5.0 million. Borrowings under both agreements bear interest at the bank's prime rate plus 1.5% (11.0% at December 31, 2000) and are secured by EDS assets. The agreements
expire in November 2001 and require that the EDS segment maintain certain levels of tangible net worth and intercompany balances from its wholly-owned

F-13

---

subsidiaries, and also prohibit the Company from paying cash dividends. Proceeds of loans under both lines of credit may be used for general corporate purposes. At December 31, 2000, the
Company had borrowings outstanding of $0.9 million under the domestic EDS agreement. Additionally, the Company had outstanding guarantees to customers through issuance of letters of credit
secured by the lines of
credit totaling $1.1 million and foreign exchange contracts for which a 10% reserve of $141,000 is secured by the lines of credit. The remaining available borrowing capacity under the lines of
credit was $5.3 million at December 31, 2000 based on eligible EDS accounts receivable and inventories as of that date.



The Company previously borrowed against a committed equipment line of credit agreement with a bank, which converted into a term loan after draw down.
Borrowings are secured by the assets purchased or financed. At December 31, 2000, the Company had an outstanding $331,000 term loan due June 2003 and a $196,000 term loan due
November 2001. The term loans bear interest at the bank's prime rate plus 1.5% (11.0% at December 31, 2000).

NOTE 6. STOCKHOLDERS' EQUITY

Common Stock

In 2000, under the terms of the acquisition of Inovec, the Company issued 249,000 shares of common stock to the former shareholders of Inovec as the first two
installments of the purchase price. The remaining obligation under the purchase agreement of $1.7 million is payable in stock to the former shareholders in April 2001 and 2002 and is
based on average share prices prior to the scheduled payment dates. At December 31, 2000, Inovec achieved certain milestones within the purchase agreement and an additional $0.3 million
is payable in stock in April 2001, based on average share prices ten trading days prior to and ten trading days after March 31, 2001.

In
1999, the Company repurchased 85,600 shares of its common stock at prevailing market prices for a total of $334,000. In 1998, the Company repurchased 114,900 shares of its common
stock at prevailing market prices for a total of $865,000.

Under
the terms of the acquisition of Quantum in September 1997, 777,000 shares of common stock have been either issued to Quantum shareholders in exchange for all the Quantum
capital stock outstanding or reserved for issuance in connection with Quantum common stock options outstanding prior to the acquisition which were converted into options to purchase InVision common
stock.

In
1997, the Company sold 1,875,000 shares of common stock in an underwritten public offering at $12.00 per share. The offering generated net proceeds to the Company of approximately
$21.2 million including proceeds from the underwriters over-allotment option.

In
connection with the Company's initial public offering, Donald & Co. Securities Inc., the underwriter, received, under the terms of the underwriting agreement, a
four-year warrant to purchase 180,000 shares of the Company's common stock at a price of $6.60 per share commencing April 23, 1997. As of December 31, 2000, no shares of the
Company's common stock had been purchased under the warrant.

F-14

---

NOTE 7. EMPLOYEE STOCK AND BENEFIT PLANS

Equity Incentive Plans

The Company has several stock option plans (the "Equity Plans") for its officers, employees, consultants and directors of the Company. The Equity Plans
provides for the granting of incentive and non-qualified stock options, stock bonus awards, rights to purchase restricted stock and stock appreciation rights (together "Stock Awards") for
the purchase of up to an aggregate of 4,489,355 shares of the Company's common stock by officers, employees, consultants and directors of the Company. The Board of Directors is responsible for
administration of the Equity Plans and also determines the terms of each Stock Award. Options granted under the Equity Plans generally vest over a four year period. In the event of a change in control
transaction, Stock Awards then outstanding shall
be continued or assumed by the surviving entity or similar awards shall be substituted therefor. If the surviving entity refuses to do so, then the vesting of or rate of lapse of repurchase rights on
such Stock Awards shall accelerate in full to the date immediately prior to the effective date of such change in control transaction. With respect to officers and directors only, even if the surviving
entity continues, assumes or substitutes Stock Awards, the vesting or rate of lapse of repurchase rights on such Stock Awards shall accelerate in full upon an involuntary termination without "cause"
or a "constructive termination" as those terms are defined in the officers' and directors' respective option agreements within a year following the effective date of the change in control transaction.

Incentive
and non-qualified stock options may be granted at an exercise price per share of not less than 85% of the fair value per common share on the date of the grant
(not less than 110% of the fair value in the case of holders of more than 10% of the Company's voting stock and not less than 100% for incentive stock options under certain plans). Options granted
under the Equity Plans generally expire ten years from the date of the grant (five years for incentive stock options granted to holders of more than 10% of the Company's voting stock). Options granted
generally vest 25% one year after issuance and 1/16th each quarter thereafter for three years.

In
October 1998, the Company offered employees and consultants the opportunity to participate in an option repricing program. Under the program, each employee and consultant
could elect on or before November 9th that his or her existing option issued under the 1991 Equity Incentive Plan be converted into a repriced option. The per share exercise price of each
repriced option would be equal to the greater of the fair market value of the Company's common stock on the conversion date (November 9, 1998) or $6.93. In return for the lower exercise price,
the repriced options issued would be subject to a blackout period whereby no options could be exercised between November 9, 1998 and May 8, 1999. The number of shares vested under the
converted option would vest immediately under the repriced option. All remaining shares subject to the repriced option will vest over a period that is equivalent to the vesting period remaining under
the converted option. On November 9, 1998, the fair market value of the Company's common stock was $6.50 and options for a total of 313,986 shares were repriced at $6.93 per share. No officers
of the Company repriced options under the program. The weighted average per share exercise price of the outstanding shares subject to the options prior to conversion was $10.55 and the range of
exercise prices was $7.69-$14.56.

In
connection with grants of stock options to employees and directors, the Company recorded $240,000 of deferred compensation representing the difference between the deemed fair value
of the Company's common stock and the exercise price at the date of grant in 1997. No such deferred stock compensation was recorded in 2000, 1999 or 1998. Amortization of deferred stock compensation
was $63,000, $68,000 and $68,000 in 2000, 1999, and 1998, respectively.

F-15

---

The activity under the Equity Plans was as follows (in thousands, except per share data):

|                                                                                                                 |                      | Year Ended December 31,
|---------------------------------------------------------------------------------------------------------------- | -------------------- | -----------------------
|
|
|Outstanding at beginning of period                                                                               |                      | 1,977                  
|                                                                                                                 | Granted              |                        
|                                                                                                                 | Exercised            |                        
|                                                                                                                 | Canceled (un-vested) |                        
|                                                                                                                 | Expired (vested)     |                        
|                                                                                                                 |                      |                        
|Outstanding at end of period                                                                                     |                      | 2,831                  
|                                                                                                                 |                      |                        
|Options exercisable at period end                                                                                |                      | 1,396                  
|Weighted average grant date fair value of options granted during the year                                        |                      |                        
|Weighted average grant date fair value of options granted during the year at exercise prices above market prices |                      |                        
|Weighted average grant date fair value of options granted during the year at exercise prices below market prices |                      |                        

Information
relating to stock options outstanding under the Equity Plans at December 31, 2000 is as follows (in thousands, except per share data):

Options OutstandingOptions ExercisableWeighted
Average
Remaining
Contractual LifeRange of
Exercise Price

Number
Outstanding

Weighted
Average
Exercise Price

Number
Exercisable

Weighted
Average
Exercise Price$
0.55- 0.55

330

4.0

$
0.55

330

$
0.55$
0.97- 1.10

301

4.8

$
1.10

301

$
1.10$
1.81- 1.81

102

9.9

$
1.81



$
$
2.75- 4.13

257

9.0

$
3.84

35

$
3.71$
4.25- 6.38

1,246

8.8

$
4.59

205

$
4.90$
6.50- 9.63

594

7.0

$
6.90

524

$
6.92$
11.25-14.56

1

6.2

$
12.58

1

$
12.472,831

7.5

$
4.07

1,396

$
3.79


1996 Employee Stock Purchase Plan

The Company's 1996 Employee Stock Purchase Plan (the "Purchase Plan") was adopted in March 1996. A total of 450,000 shares of common stock has been
reserved for issuance under the Purchase Plan. As of December 31, 2000, 318,000 shares have been issued under the Purchase Plan.

Fair Value Disclosures

Had compensation cost for options granted in 2000, 1999 and 1998 under the Company's Equity Plans been determined based on the fair value at the grant dates,
as prescribed in Statement of

F-16

---

Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based Compensation," the Company's net income (loss) and pro forma net income (loss) per share would have been
as follows (in thousands, except per share data):

Year Ended December 31,2000

1999

1998Net income (loss):As reported

$
(1,806
)
$
383

$
8,041Pro forma

$
(3,056
)
$
(1,223
)
$
6,481Pro forma net income (loss) per share:Basic:As reported

$
(0.14
)
$
0.03

$
0.67Pro forma

$
(0.24
)
$
(0.10
)
$
0.54Diluted:As reported

$
(0.14
)
$
0.03

$
0.63Pro forma

$
(0.24
)
$
(0.10
)
$
0.51


The
fair value of each option grant is estimated on the date of grant using the Black-Scholes pricing model with the following assumptions used for grants during the applicable
period:

2000

1999

1998Risk free rate of return

6.32-6.68%

5.10-5.31%

4.43-4.79%Weighted average expected option term

3.8 years

4.3 years

3.8 yearsVolatility rate

66%

65%

72%Dividend yield

0%

0%

0%


1997 Employee 401(k) Plan

The InVision Technologies, Inc. 401(k) Plan (the "401(k) Plan") was established in 1992 to provide retirement and incidental benefits for its employees.
As allowed under Section 401(k) of the Internal Revenue Code, the 401(k) Plan provides tax-deferred salary deductions for eligible employees. Employees may contribute up to 20% of
their annual compensation to the 401(k) Plan, limited to a maximum amount as set periodically by the Internal Revenue Service. Beginning in July 1997, the Company began matching employee
contributions at the rate of $0.50 on the dollar up to a maximum of 6% of the employee's gross compensation. All matching contributions vest immediately. Company matching contributions to the 401(k)
Plan totaled $395,000, $351,000 and $294,000 in 2000, 1999 and 1998, respectively.

NOTE 8. COMMITMENTS

The Company leases facilities and equipment under non-cancelable leases expiring at various times through 2007. The existing facilities lease
includes an option to renew for an additional five years

F-17

---

through 2012. Future minimum lease payments under these leases at December 31, 2000 are as follows (in thousands):

Year Ending December 31,

Operating
Leases

Capital
Leases2001

$
1,606

$
912002


1,418


532003


1,268


192004


1,227


162005


1,252


Years thereafter


2,071


$
8,842


179Less: amount representing interest





(27
)Present value of net minimum lease payments





152Less: current portion of capital lease obligations





(76
)Long-term capital lease obligations




$
76


Rent
expense for facilities located in Newark, California, San Diego, California, Eugene, Oregon, and in the United Kingdom was $1,529,000, $1,445,000 and $1,357,000, for the years
ended December 31, 2000, 1999 and 1998, respectively.

The
lease on the corporate office and manufacturing facility in Newark, California includes scheduled base rent increases over the term of the lease. The total amount of base rent
payments is being charged to expense on the straight-line method over the term of the lease. In addition to the base rent payment, the Company pays a monthly allocation of the building's
operating expenses. At December 31, 2000 and 1999, the Company has recorded long-term deferred rent of $539,000 and $449,000, respectively, to reflect the excess of rent expense
over cash payments since inception of the lease.

NOTE 9. INCOME TAXES

For 2000, 1999 and 1998, the provision for income taxes consists of the following (in thousands):

Year Ended December 31,2000

1999

1998Current:Federal

$
333

$
188

$
756State


30


4


200Foreign





9


140363


201


1,096Deferred:Federal benefit


(363
)

(134
)

Total provision

$


$
67

$
1,096


F-18

---

The Company's effective tax rate for 2000, 1999 and 1998 differs from the U.S. statutory income tax rate as follows:

U.S. federal statutory rate

(35.0
)%
35.0
%
35.0
%State taxes, net of federal tax benefit

1.7

0.3

0.9Non-deductible intangible assets

15.4



Utilization of operating loss carryforwards and valuation allowance

17.6

(35.1
)
(23.5
)Other

0.3

14.8

(0.4
)Effective tax rate


%
15.0
%
12.0
%


Deferred
tax assets (liabilities) consist of the following (in thousands):

December 31,2000

1999Assets:Net operating loss carryforwards

$
1,669

$
1,654Tax credits


950


1,384Reserves and accruals


3,311


2,242Other


597


6906,527


5,970Liabilities:Other


(299
)

(422
)Valuation allowance


(5,731
)

(5,414
)Net deferred tax assets

$
497

$
134


The
Company provides a valuation allowance for deferred tax assets when it is more likely than not, based upon currently available evidence including its prior history of losses, that
some portion or all of the deferred tax assets will not be realized.

At
December 31, 2000, the Company had federal net operating loss carryforwards of approximately $4.6 million available to reduce future federal taxable income. The
Company's net operating loss carryforwards expire from 2010 to 2012 and tax credit carryforwards expire from 2005 to 2018. The tax benefit of the net operating loss and credit carryforwards may be
limited due to the impact of the Tax Reform Act of 1986. Events which may cause the tax benefit to be limited include, but are not limited to, a cumulative stock ownership change of more than 50%, as
defined, over a three year period and the timing of utilization of various tax benefits carried forward.

NOTE 10. INDUSTRY SEGMENTS

Under the provisions of SFAS 131, the Company is reporting segment information in the same format regularly reviewed by the Company's management in
deciding how to allocate resources and assess performance in 2000. The Company has three reportable segments based on types of technology and applications. The "EDS" segment is comprised of the
business unit that deals with the development, manufacturing, marketing and support of explosive detection systems based on advanced CT technology. The "Quantum" segment is comprised of the business
unit that deals with the development of technology for inspection, detection and analysis of explosives, primarily landmine detection, and other materials based on quadrupole resonance technology and
passive magnetic sensing. The "Wood" segment is comprised of those business units that deal with the development of

F-19

---

technology to optimize the value and yield of harvested timber based on different types of scanning technologies, including CT technology. Prior years' segment information has been presented to
reflect the above structure of the Company's organization.

Financial
information by business segment is as follows (in thousands):

|                  |                              | EDS |        | Quantum |   | Wood   |        | Total |       
|----------------- | ---------------------------- | --- | ------ | ------- | - | ------ | ------ | ----- | ------
|Year 2000         |                              |     |        |         |   |        |        |       |       
|Revenues:         |                              |     |        |         |   |        |        |       |       
|                  | Product revenues             |     | $      | 46,499  |   | $      | 307    |       | $     
|                  | Service revenues             |     |        | 8,278   |   |        |       |       |       
|                  | Government contract revenues |     |        |        |   |        | 10,632 |       |       
|                  |                              |     |        |         |   |        |        |       |       
|Total revenues    |                              | $   | 54,777 |         | $ | 10,939 |        | $     | 13,430
|Net income (loss) |                              | $   | 318    |         | $ | 7      |        | $     | (2,131
|Total assets      |                              | $   | 57,261 |         | $ | 4,056  |        | $     | 8,015 
|Year 1999         |                              |     |        |         |   |        |        |       |       
|Revenues:         |                              |     |        |         |   |        |        |       |       
|                  | Product revenues             |     | $      | 43,001  |   | $      | 159    |       | $     
|                  | Service revenues             |     |        | 4,582   |   |        |       |       |       
|                  | Government contract revenues |     |        |        |   |        | 10,694 |       |       
|                  |                              |     |        |         |   |        |        |       |       
|Total revenues    |                              | $   | 47,583 |         | $ | 10,853 |        | $     |      
|Net income (loss) |                              | $   | 1,457  |         | $ | 17     |        | $     | (1,091
|Total assets      |                              | $   | 58,534 |         | $ | 4,453  |        | $     |      
|Year 1998         |                              |     |        |         |   |        |        |       |       
|Revenues:         |                              |     |        |         |   |        |        |       |       
|                  | Product revenues             |     | $      | 60,854  |   | $      |       |       | $     
|                  | Service revenues             |     |        | 2,430   |   |        |       |       |       
|                  | Government contract revenues |     |        |        |   |        | 7,210  |       |       
|                  |                              |     |        |         |   |        |        |       |       
|Total revenues    |                              | $   | 63,284 |         | $ | 7,210  |        | $     |      
|Net income (loss) |                              | $   | 10,047 |         | $ | (1,703 | )      | $     | (303  

Substantially
all of the Company's long-lived assets are located in the United States.

NOTE 11. RELATED PARTY TRANSACTIONS

In 2000, 1999 and 1998, the Company recorded professional and consulting fees of $188,000, $199,000 and $205,000, respectively, as compensation to the
Company's directors for services provided as members of the Board of Directors as well as consulting services rendered to the Company not in connection with their services as directors.

In
August 1996 and as amended in September 1999, the Company entered into a consulting agreement with BGI, Inc. ("BGI"), a Virginia-based international consulting
firm engaged to assist the Company with enhancing its methods, strategies and contacts to support the marketing of the CTX 5000 Series to the U.S. Government. In March 1998, Ambassador Busby, a
controlling shareholder of BGI, was elected to the Company's Board of Directors. The Company paid consulting fees for BGI consulting services of $120,000, $120,000 and $240,000 in 2000, 1999 and 1998,
respectively, and has

F-20

---

recorded consulting expenses of $108,000 through issuance of 20,468 shares of common stock, effective February 2001, under this agreement.

NOTE 12. LICENSE AGREEMENTS

In connection with the formation of the Company, the Company obtained an exclusive, worldwide, and fully-paid license, as amended, from
Imatron, Inc. regarding its patents and know-how related to (a) scanners for inspection of mail, freight, parcels, baggage and wood products, and (b) compact medical
scanners for military field applications. The license allows the Company to develop, manufacture and sell systems based on a different type of CT technology than is currently incorporated in the
Company's CTX Series. The license applies to (a) scanners for the inspection of mail, freight, parcels, baggage and wood products, and (b) compact medical scanners for military field
applications. The Company, in exchange, granted to Imatron an exclusive, worldwide, perpetual and fully paid license under the Company's then existing or future patents and know-how to
permit Imatron to utilize such technology in medical scanners other than compact medical scanners for military field applications. The license expires in 2009.

In
April 1999, Quantum entered into a Technology License Agreement with International Business Machines (IBM). This agreement is a 10-year,
non-exclusive, non-transferable, worldwide license for certain detection technology. A one-time license fee was paid to IBM. Quantum is required to make royalty
payments based upon the net sales price of certain products sold or otherwise transferred by Quantum. There were no minimum royalty payments and no sales that would have resulted in a royalty payment
to IBM in 2000 or 1999.

In
October 1994, Quantum entered into a twelve-year license agreement with a third party. As amended in May 1997, the agreement provides Quantum with a
non-exclusive, irrevocable license to certain in-process detection technology (the "Superconductor Technology"), as well as equipment with a fair value of $100,000 in exchange
for a $330,000 note payable due in unequal quarterly payments plus 11% interest.

In
June 1997, Quantum entered into a joint venture to perform research and development related to certain detection technologies. In exchange for a 38% ownership interest in
the joint venture, Quantum granted a non-exclusive, royalty free, perpetual, transferable sub-license on the Superconductor Technology, agreed that the joint venture will be
the sole source of fabrication and testing of products developed by the joint venture, and agreed to guarantee one-half of a $200,000 working capital loan to the joint venture. In
connection with the formation of the joint venture, Quantum sold equipment to the joint venture in exchange for an eleven-year note receivable of $100,000, bearing interest at 6.7% per
annum. In January 1999, Quantum sold sufficient shares to reduce its ownership in the joint venture to 10%, was released from its obligation to guarantee one-half of the working
capital loan to the joint venture and agreed to extend the payment holiday under its note receivable from the joint venture to July 10, 2001.

In
March 1995, Quantum executed a ten-year exclusive license agreement with a third party. Quantum is subject to royalty payments based on a percentage of the net
sales price of certain products made, used or sold. Minimum annual royalties of $20,000 are due beginning in calendar year 1997 through the remaining term of the agreement. Quantum did not incur
royalty expense under this agreement in 1995 or 1996, and paid the minimum royalty of $20,000 for 1997 and 1998. In January 1999, Quantum and the licensor agreed to modify the license by
expanding the field of use, increasing the minimum annual royalty to $70,000 and extending the term until January 2009. Quantum paid a one-time fee of $50,000 to obtain such
modification and extension and paid the minimum annual royalty of $70,000 for each of the years 2000 and 1999.

F-21

---

In recognition of development costs incurred by Quantum Design, Inc. ("QD") prior to the spin-out of Quantum, Quantum agreed to pay QD a royalty rate of 4% of net
sales of certain products, whether sold by Quantum or any licensee, for a period of six years from the effective date of the agreement, April 15, 1994. Quantum paid the minimum royalty of
$50,000 in 1998. In 1999 and 2000, there was no minimum royalty payment and no sales that would have resulted in a royalty payment to QD. The agreement expired in April 2000.

NOTE 13. LITIGATION

In July 2000, the Company entered into a settlement agreement (the "Settlement Agreement") that settled an action brought on January 7, 1999 by
Vivid Technologies, Inc. ("Vivid") in Superior Court of the State of California for the County of San Diego against the Company, ESI International, Inc. ("ESI"), Robert Price and Sandra
Price (collectively, "Defendants"). Vivid asserted causes of action for (1) misappropriation of trade secrets; (2) inducing breach of contract; (3) interference with contractual
relations; (4) statutory unfair competition; (5) common law unfair competition; (6) interference with prospective economic advantage; (7) defamation; and
(8) declaratory relief. The complaint was filed by Vivid following efforts by the Company and ESI, a private investigator hired by the Company, to investigate the alleged theft of intellectual
property from the Company by a former key employee hired by Vivid and to bring certain evidence to the attention of the Federal Bureau of Investigation and the United States Attorney for the Southern
District of California. As part of the Settlement Agreement, Vivid represented that it is no longer pursuing QR technology and agreed not to pursue QR technology for two years from the date of the
agreement. Vivid further agreed to file a request for dismissal of the complaint without prejudice which would automatically convert to a dismissal with prejudice on the second anniversary of
the Settlement Agreement. Similarly, the Company agreed that their voluntary dismissal of a federal court action (which had been filed but not served) against Vivid based on the alleged theft would
also automatically convert to a dismissal with prejudice in two years. Management believes that the terms of the Settlement Agreement will not have a material adverse effect on the Company's business,
financial condition or results of operations.

In
addition to the foregoing matter, the Company may be involved, from time to time, in other litigation, including litigation relating to claims arising out of its operations in the
normal course of business. The Company is not currently a party to any legal proceedings, the adverse outcome of which, in management's opinion, individually or in aggregate would have a material
adverse effect on the Company's business, financial condition or results of operations.

F-22

---

NOTE 14. BALANCE SHEET COMPONENTS

December 31,2000

1999(in thousands)Accounts receivable, net:Billed

$
12,544

$
6,845Unbilled


10,056


3,877Other receivables


249


82Subtotal


22,849


10,804Less: allowance for doubtful accounts


(302
)

(171
)Total

$
22,547

$
10,633Inventories:Raw material and purchased components

$
15,169

$
10,325Work-in-process


4,503


6,819Finished goods


535


316Total

$
20,207

$
17,460Property and equipment, net:Machinery and equipment

$
6,077

$
5,144Self constructed assets


5,266


4,316Furniture and fixtures


1,121


1,113Leasehold improvements


3,013


2,965Subtotal


15,477


13,538Less: accumulated depreciation and amortization


(8,736
)

(6,742
)Total

$
6,741

$
6,796Accrued liabilities:Warranty and other reserves

$
4,352

$
2,478Accrued employee compensation


3,172


1,492Income taxes


1,302


906Other


2,387


690Total

$
11,213

$
5,566


Unbilled
receivables are comprised of those amounts billable to customers upon satisfaction of certain perfunctory activities, such as installation and final acceptance.

Self-constructed
assets are manufactured by the Company for use in system testing and support, and include the cost of parts and materials, and an overhead allocation. The
Company depreciates self-constructed assets over their respective estimated useful lives which range from three to five years.

At
December 31, 2000 and 1999, the Company had $382,000 and $343,000, respectively, of capitalized lease equipment and related accumulated amortization of $195,000 and
$134,000, respectively.

F-23

---

NOTE 15. QUARTERLY FINANCIAL DATA (UNAUDITED)

|(in thousands, except per share data)
Quarter ended 2000 |  | Apr. 2  |        | Jul. 2  |   | Oct. 1   |   | Dec. 31 |       
|-------------------------------------------------------- |  | ------- | ------ | ------- | - | -------- | - | ------- | ------
|Total revenues                                           |  | $       | 18,679 |         | $ | 16,982   |   | $       | 22,141
|Gross profit                                             |  |         | 5,759  |         |   | 5,222    |   |         | 7,091 
|Net income (loss)                                        |  |         | (660   | )       |   | (1,665   | ) |         | 197   
|Basic income (loss) per share                            |  |         | (0.05  | )       |   | (0.13    | ) |         | 0.02  
|Diluted income (loss) per share                          |  |         | (0.05  | )       |   | (0.13    | ) |         | 0.01  
|Quarter ended 1999                                       |  | Mar. 31 |        | June 30 |   | Sept. 30 |   | Dec. 31 |       
|Total revenues                                           |  | $       | 17,839 |         | $ | 14,562   |   | $       | 13,034
|Gross profit                                             |  |         | 7,670  |         |   | 5,623    |   |         | 4,514 
|Net income (loss)                                        |  |         | 1,814  |         |   | 108      |   |         | (659  
|Basic income (loss) per share                            |  |         | 0.15   |         |   | 0.01     |   |         | (0.05 
|Diluted income (loss) per share                          |  |         | 0.14   |         |   | 0.01     |   |         | (0.05 

F-24

---



InVision Technologies, Inc.  Schedule IIValuation and Qualifying Accounts  Years Ended December 31, 2000, 1999 and 1998  (in thousands)

|                                |  |   |       | Additions |   |     |  |  
|------------------------------- |  | - | ----- | --------- | - | --- |  | -
|
|Allowance for doubtful accounts |  |   |       |           |   |     |  |  
|2000                            |  | $ | 171   |           | $ | 188 |  | $
|1999                            |  | $ | 40    |           | $ | 170 |  | $
|1998                            |  | $ | 25    |           | $ | 15  |  | $
|Reserves for inventory          |  |   |       |           |   |     |  |  
|2000                            |  | $ | 1,179 |           | $ | 357 |  | $
|1999                            |  | $ | 630   |           | $ | 549 |  | $
|1998                            |  | $ | 438   |           | $ | 240 |  | $

S-1

---

QuickLinks