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                       U.S. SECURITIES AND EXCHANGE COMMISSION

                                WASHINGTON, D.C. 20549

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

                                     FORM 10-KSB

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

                   For the fiscal year       Commission file
                          ended:                number:
                  SEPTEMBER 30, 1996             0-26614


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

                                      MVSI, INC.

                    (Name of Small Business Issuer in Its Charter)

               DELAWARE                                    52-1707718
     (State or other jurisdiction of                    (I.R.S. Employer
    incorporation or organization)                     Identification No.)

 8133 LEESBURG PIKE, SUITE 750, VIENNA, VA                   22182
 (Address of principal executive offices)                 (Zip code)

                                      (703) 356-5353
                    (Company's telephone number, including area code)
                                  -----------------

            Securities registered under Section 12(b) of the Exchange Act:

                        TITLE OF EACH              NAME OF EACH
                           CLASS                     EXCHANGE
                                                ON WHICH REGISTERED
                                                    
                        Not Applicable            Not Applicable

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

                                    TITLE OF CLASS

                             Common Stock, $.01 Par Value

                                   Class A Warrants

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

    Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing 

<PAGE>


requirements for past 90 days. Yes  X   No 
                                  -----    -----

    Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will
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-KSB
or any amendment to this Form 10-KSB.  / X /

    The issuer's revenues for its most recent fiscal year:  $15,987,636. 

    The total market value of the voting stock was $45,708,750, of which
$33,631,865 was held by nonaffiliates of the registrant, based upon the closing
price of the common stock on December 27, 1996, as quoted by the Nasdaq SmallCap
Market System. 

    The number of outstanding shares of the registrant's common stock on
December 27, 1996 was 10,755,000. 

                         DOCUMENTS INCORPORATED BY REFERENCE

    Portions of the S-3 Registration Statement, and related Prospectus, 
Registration File No. 33-89194, declared effective with the Securities and 
Exchange Commission ("Commission") on October 16, 1996, are incorporated 
herein by reference into Part III of this report. Portions of the Proxy 
Statement of the registrant to be filed with the Commission pursuant to 
Regulation 14A of the Securities Exchange Act of 1934 on or prior to January 
31, 1997, are incorporated herein by reference into Part III of this report. 

    Transitional Small Business Disclosure Format: Yes        No  X   
                                                      -----     -----

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                                      MVSI, INC.
                                        INDEX

    


                      PART I                                             PAGE
Item 1.   Description of Business.                                          3
Item 2.   Description of Properties.                                       11
Item 3.   Legal Proceedings.                                               12
Item 4.   Submission of Matters to a Vote of Security Holders.             12

                     PART II                        
Item 5.   Market for Common Equity and Related Stockholder                 12
          Matters.      
Item 6.   Management's Discussion and Analysis or Plan of                  13
          Operations.    
Item 7.   Financial Statements.                                            18
Item 8.   Changes in and Disagreements with Accountants on                 19
          Accounting and Financial Disclosure.      
                     PART III 
Item 9.   Directors, Executive Officers, Promoters and Control             19
          Persons; Compliance with 16(a) of the Exchange Act.           
Item 10.  Executive Compensation.                                          19
Item 11.  Security Ownership of Certain Beneficial Owners and              19
          Management.    
Item 12.  Certain Relationships and Related Transactions.                  19
Item 13.  Exhibits, List and Reports on Form 8-K.                          19

<PAGE>
ITEM 1.  DESCRIPTION OF BUSINESS.

OVERVIEW

       MVSI, Inc. ("Company"), headquartered in Vienna, Virginia, is a publicly
traded (NASDAQ: "MVSI") high technology company.  Founded in 1994, the Company
has three wholly-owned subsidiaries: MVS Modular Vision Systems, Inc. (MVS), a
Montreal, Quebec-based corporation engaged in the design and manufacture of
proprietary machine vision products and systems; Socrates, Inc.(Socrates), a
Gaithersburg, Maryland-based corporation, which integrates, installs and
supports high-end computer and communication equipment; and JMR Distributors,
Inc. (JMR), a Lorton, Virginia-based corporation specializing in the purchase
and sale of computer memory chips and network equipment. Unless stated 
otherwise, any reference to the company shall include in its meaning the 
aforementioned subsidiaries.


MVS MODULAR VISION SYSTEMS, INC.

       The Company acquired MVS Modular Vision Systems, Inc., a Canadian
corporation, on November 1, 1994, in an exchange of securities, whereby the
latter corporation became a wholly-owned subsidiary of the Company.

        The primary component of MVS's products and systems is the Company's
three-dimensional vision technology, which is in the early stages of development
with no brand name recognition. This technology utilizes specialized cameras,
lasers, optics and custom-designed high-speed processing hardware and software. 
The Company currently markets and sells one principal scanner product and
system: the MVS LaserVision FP Lead Scanner, and also markets and sells two
principal sensor products and systems: the MVS LaserVision Welding Sensor and a
MVS Portable LaserVision Welding Inspection System. The Company's products and
systems are marketed worldwide, but principally to major corporate customers in
North America, Europe and the Pacific Rim.

       The Company believes that companies that produce vision-based scanner and
welding sensor products and systems have evolved over the past ten years into a
more consolidated and intensely competitive industry. Although the Company is
not aware of any other entity having a three-dimensional vision system
capability as sophisticated, comprehensive and highly automated as that achieved
by the Company, no assurances can be made that the Company's products and
systems will maintain any technological advances or will be competitive in the
marketplace. 


MVS PRODUCTS AND MARKETS
 
 SEMICONDUCTOR MARKET

  MVS LASERVISION FP LEAD SCANNER

       In 1990, IBM selected the Company to develop, on a non-exclusive basis, a
non-contact lead scanner system for QFP ("Quad Flat Packs") chips, placing their
first order in May 1990. This agreement and the cooperation between IBM and the
Company resulted in development of the MVS LaserVision FP (fine pitch) Lead
Inspection Scanner, a technology for the inspection of the leads
(or connectors) of flat-pack computer chips. IBM retained no rights in the
technology developed by the Company under its agreement. It has the ability 
to perform complete chip lead inspection such as co-planarity, lead
shape, angle, width and spacing as well as overall geometry with chips laying in
the standard shipping tray. This method of inspection (i.e. no manipulation of
the chips) ensures a high degree of confidence that all shipped devices are
within specifications. 

                                                                           3
<PAGE>

       In addition to the individual chip qualification, the system performs a
full complement of meaningful statistical analysis allowing for monitoring and
fine-tuning of the upstream packaging equipment (a must for a high quality
assurance program). The present FP lead scanner technology is accurate to a few
micrometers at a speed of 4000 units per hour for TSOP Type II devices. 

       Today, Intray Quality Assurance process must deal with pin counts as high
as 500 leads and line spacings down to .004 inches. In addition, manufacturers
are seeing demands for quality levels as high as three or four failures per
million. Unlike the front end, the height dimension is also critical in assuring
proper lead contact when mounted. Therefore, at this end of the process, vision
solutions must be "three dimensional" or "3-D." The Company believes that this
technology has created a significant market opportunity for the
Company's 3-D FP lead scanner, which has a purchase price of approximately
$250,000 each depending on configuration. 

  SCANNER MARKET

       The scanner market includes almost all computer memory chip manufacturers
(e.g. Intel, Motorola, National Semiconductor, Samsung, Fujitsu, ET CETERA.)
worldwide. As computer chips decrease in size and increase in complexity, an
ever increasing demand is expected for machine vision based products to assure
effective inspection as well as feedback to the production equipment. 

       The Company's principal competitors on the worldwide market are Robotic
Vision Systems, Inc. ("RVSI"), View Engineering, Inc. ("View") and ICOS. By use
of a patented combination of 2-D and 3-D techniques, the Company believes that
its scanner is more accurate in measuring lead width, spacing and relative
position. The Company also believes that its product features such as throughput
rates (speed), set-up times, ease of maintenance and serviceability contribute
to its products being competitive in the marketplace. 

CMM MARKET

       In April 1994, the Company entered into an agreement with Possehl Hong 
Kong Precision Machining Ltd. ("Possehl"), a Hong Kong-based high technology 
products manufacturer and distributor and a wholly-owned subsidiary of 
Possehl AG, a German conglomerate, that provides Possehl with exclusive 
worldwide rights to manufacture and distribute to the semiconductor industry 
a leadframe inspection scanner, which has been specially designed, developed 
and manufactured to Possehl's specifications by the Company.  The Company has 
retained the rights to the CMM in North America.  The CMM is used in the 
quality assurance department of chip manufacturers to inspect semiconductor 
leads on a random basis and enables manufactures to identify flaws in the 
manufacturing process.  The CMM inspects the dimensions of leadframes used in 
the semiconductor industry.  The CMM is still in the development stage, with 
a projected market launch for second quarter FY 1997.  The machine will sell 
from $80,000 to $120,000 each depending on configuration.  There are at least 
a dozen competitors who have launched comparable CMM products during 1996 
into a market that is both rapidly expanding and highly competitive.

INDUSTRIAL MARKET

  WELDING SENSOR MARKET

       The Company believes that its MVS LaserVision Welding Sensor is in the
forefront of adaptive arc welding and gluing technology, automating welding
machines, guiding robots and improving both quality and productivity. The
Company's sensors are successfully inspecting weld joint geometry, weld and glue
beads, as well as guiding the welding machines for the manufacturing of a wide
variety of parts 

                                                                             4
<PAGE>

from simple water heating tanks to jet engines and applications on NASA's 
Space Station Freedom. The Company offers its sensor products and systems for 
approximately $80,000 to $140,000 each depending on the complexity and 
configuration of the system. 

       The Company believes that its laser vision products have made 
significant improvements in the production capabilities and quality standards 
of the welding industry.  Some welding intensive manufacturing companies have 
placed repeat orders for MVS LaserVision products.  Proficient welders are 
growing older and the new, health conscious generation is not as interested 
in this industry as the previous generation.  As labor costs have continued 
to rise, and as global competition has required increased quality assurance, 
such as ISO 9000, and control, the incentives for manufacturers to adopt 
machine automation into their manufacturing processes have increased.  The 
welding industry is still a very traditional industry and the promotion of 
LaserVision technology requires significant customer education, however the 
financial incentives caused by a shifting competitive environment are forcing 
manufacturers to seriously consider automation, including the retrofit of 
their existing processes with vision control systems.

       While the United States and Canada remain important welding sensor 
markets for the Company due to the proximity of customers to the Company, the 
Company has also successfully sold its welding sensor systems in Europe and 
the Pacific Rim. In these markets, the Company intends to concentrate in 
producing products and systems for: 

       -    Cylindrical containers such as water heating tanks, pumps,
            compressors, commercial beverage containers, gas and
            propane bottles, mufflers, catalytic converters, gasoline
            tanks, oil tanks, ET CETERA. 

       -    Pipes, seam welded longitudinal or spiral. 

       -    Naval applications. 

       -    Aerospace applications. 

       The Company's principal competitors in the welding sensor market include
Servo-Robot, Inc. (Canada), Odelft AB (Holland) and Selcom AB (Sweden). It is
likely that other competitors will emerge in the future. 

       Japan has a continuous problem with manpower and space limitations. 
Japan is resolving both problems by seeking to achieve the highest level of 
automation in the world (which includes 75% of the world robot population). 
Japan is potentially the biggest and most important market for the Company's 
products and systems but also the toughest to penetrate.  It is essential 
that adequate MVS resources are available and committed to satisfy the most 
demanding customers in the world.  The Company believes that if it is able to 
successfully penetrate the Japanese market, certainly the premier market in 
the Pacific Rim, it will establish significant credibility for the Company's 
products and systems throughout the Pacific Rim. 

       South Korea is also an especially fast growing market for machine vision
sensor equipment. South Korea expects to double its GNP in five years. Korea is
second to Japan in shipbuilding. Besides shipbuilding, South Korea has a strong
automobile and truck manufacturing industry and a growing aerospace industry. 

MVS PORTABLE LASERVISION WELDING INSPECTION SYSTEM

       The Company recently developed and sold its MVS Portable LaserVision
Inspection Scanner to the Edison Welding Institute of the U.S. Navy Joining
Center. The product is portable, making it much 

                                                                             5
<PAGE>

more versatile in its applications, such that it has been designed and 
developed to be used in the field by the shipbuilding, aerospace and other 
heavy manufacturing industries to inspect joint geometry and flag defects in 
welding and manufacturing such as undercuts, porosity, concavity, convexity, 
ET CETERA, in accordance with commercial such as ISO 9000 or military 
specifications and standards.  A flexible user interface of the system will 
also allow for custom (user programmable) criteria. The system can be used in 
three modes: a general inspection mode, a statistical process control mode 
and a data collection mode. The portable inspection scanner incorporates a 
significant part of the technology of the welding sensor but on a 
miniaturized basis. The portable inspection system was designed and developed 
with a state-of-the-art, high sensitivity miniature camera, wide angle lens 
and a laser system, combined with highly proprietary software to drive the 
system. Following a positive review of the technology by the Edison Welding 
Institute, the Company decided to push ahead with the commercialization of 
the portable inspection system.  The Company now offers the portable 
inspection scanner for sale to welding research labs for prototype evaluation 
at a cost of $30,000 each, and will launch a commercial version that is 
ruggedized once the existing product upgrade has been completed. 

SOCRATES, INC.

       The Company acquired Socrates, Inc. effective July 1, 1996. MVSI 
exchanged 350,000 shares of its restricted common stock for all the shares of 
common stock held by Socrates' sole stockholder.

       Founded in 1989, Socrates is an integrator and marketer of proprietary 
and generic computer system products and services for advanced systems 
integration, telecommunications integration, Internet connectivity, and wide 
and local area networking.

       Socrates technicians evaluate and optimize a customer's existing computer
network system before installing new hardware and software to enhance the
productivity of the system.  Once the system is operational to the customer's
satisfaction, Socrates technicians follow-up with training for the customer's
staff members in the operation and application of the newly installed system. 
The customer's current computing environment is used to set the framework for
all product and service recommendations made by Socrates to the customer for
systems sales and installation.  To take advantage of the rapid growth of the
Internet and provide its customers with complete Internet connectivity, Socrates
has created a special in-house networking group. The Company anticipates 
significant growth in Socrates' networking group business in 1997.

SOCRATES PRODUCTS AND MARKETS

       Socrates offers a variety of products and services ranging from 
laptops, desktops, printers, and file servers, to application and networking 
software.  The Socrates sales staff educates itself on the latest technology 
offered by its vendor partners.  Socrates technicians strive to configure 
systems that optimize a customers information technology investment.  The 
company is an authorized sales representative for most leading computer 
companies, including AST, COMPAQ, Hewlett Packard, IBM, Sun Microsystems, 
Toshiba, and many other top-tier computer manufacturers. 

       Socrates has delivered computing solutions to a wide range of 
customers including Fortune 500 companies and government agencies.  Many of 
the products sold by Socrates can be purchased from Socrates off of the GSA 
(US Government) schedule.  In 1997, Socrates will seek to significantly 
expand its computer maintenance services for Fortune 500 companies.
 
                                                                             6
<PAGE>
       Additionally, Socrates is expected to enhance the Company's capability to
provide software and hardware support to MVS, whose product line includes
computer oriented proprietary laser vision-based products and systems.


JMR DISTRIBUTORS, INC.

       MVSI, Inc. acquired all the outstanding stock of JMR, effective 
October 1, 1995, whereby MVSI, Inc. exchanged 100,000 restricted shares of 
MVSI, Inc. common stock for all outstanding shares of JMR.

       Founded in 1990, JMR is a contract manufacturer and distributor of
proprietary and generic memory module products for computers, plotters, laser
printers, process controllers and other computer related industry devices using
memory modules. In 1997, JMR will be expanding its computer related product 
line to accomodate its customers increased use of the rapidly growing 
Internet and intranet communication and information systems.

JMR PRODUCTS AND MARKETS

       JMR's products are marketed nationally to major computer distributors 
and corporate customers.  The acquisition of JMR has enabled the Company to 
expand into the computer memory market and take advantage of the projected 
demand by computer users for increased memory capabilities to cope with the 
new hardware and software developments. Although memory prices and profit 
margins declined dramatically during the year, JMR was able to maintain its 
revenue rate compared with 1995. This was accomplished by JMR increasing its 
customer base and number of sales through sales performance and emphasis on 
products and customer service. JMR is the first step in the Company's efforts 
to participate in this market. The Company believes that its experience with 
laser vision-based quality control of the memory microchip manufacturing 
process will continue to prove to be beneficial in its future manufacture and 
distribution of high quality memory modules. JMR is currently expanding its 
computer products line to take advantage of perceived opportunities in the 
commercial, government and personal market for computer products to be used 
on the Internet and intranets.

MANUFACTURING

       The Company's principal production facilities relate to MVS and its 
Canadian manufacturing operations. MVS's existing facilities are capable of 
fabricating and assembling total electronic and electromechanical systems and 
subsystems. Facilities include an assembly and wiring department that has the 
capability of producing complex wiring harnesses, as well as intricate 
electronic subassemblies. The Company maintains a comprehensive test and 
inspection program to ensure that all systems meet customer requirements for 
performance and quality workmanship. To support its internal operation and to 
extend its overall capacity, the Company purchases a wide variety of 
components, assemblies and services from proven outside manufacturers, 
machine shops, sheet metal fabricators, distributors and service 
organizations. The Company's purchases of the various components, assemblies 
and sub-assemblies represents approximately 40 percent of the cost of 
producing the Company's vision-based products and systems. 

MARKETING AND SALES

       MVS's marketing strategy is to focus on its core vision business and 
expand the number of vision applications and templates that it is able to 
support and to aggressively expand its marketing and sales presence in the 
market.  In 1996, MVS established regional direct sales offices in Ohio and 
North Carolina.  In 1997, MVS plans to establish two more U.S. based sales 
offices and to seek out and enter into agreements with at least two 
additional distributors.  It also plans to expand its worldwide distribution 
network through the development of relationships with foreign distributors. 
There is no guarantee that these relationships will in fact be established or 
that they will be successful.

       As a result of its limited and focused target market, the Company's
marketing efforts rely heavily on direct sales methods. The relatively high
dollar value of each lead scanner unit sold, combined with the technically
complex nature of the system, results in an in-depth and complex purchase
decision process for the product.  It also requires that sales representatives
be trained extensively and have a thorough industry knowledge before they can
become effective.  As a result, the selling cycle for the Company's products and
systems is generally between six to nine months from initial customer contact. A
lengthy purchase process is often the case in the purchase of the initial unit
of a particular product or system sold by the Company. Subsequent purchases
require less time and may result in multiple orders. Typically, 
                                                                             7
<PAGE>

potential purchasers visit the Company's manufacturing facility in Montreal, 
Canada to receive a full demonstration of the product and system and to 
discuss the merits of the product and system with the Company's engineers 
before making a purchase decision.  Starting in late 1996, demonstration 
equipment was provided to regional offices to provide potential clients with 
a demonstration venue that is closer to their manufacturing facility.

       Sales activities in the domestic market are handled by a combination of
direct sales personnel. Due to the depth of analysis involved in the customer's
purchase decision, management emphasizes active interaction between the direct
sales staff, the Company's engineers, its independent sales representatives and
the buyer throughout the selling process. 

       The Company has established distribution capabilities with independent
distributors in both Europe and the Pacific Rim, which has provided access to
major markets for its products and systems. 

       Socrates and JMR each utilize an in-house direct sales force. Both 
companies intend to aggressively expand their marketing and sales presence in 
the market during 1997.

INDUSTRY SEGMENT INFORMATION AND MAJOR CUSTOMERS

       For purposes of segment reporting for the year ended September 30, 1996,
management considers the Company to operate in two industry segments:  the
machine vision industry and the computer distribution and reseller industry. 
For the year ended September 30, 1995, management considered the Company to
operate in only one industry segment, the machine vision industry.

       For the year ended September 30, 1996, the Company had one customer which
accounted for approximately 10 percent of its total revenue.  For the year ended
September 30, 1995, the Company derived 40 percent of its sales from three
customers.  In addition, approximately, 19% and 67% of the Company's sales in
fiscal years 1996 and 1995, respectively, were to customers outside North
America.

       The Company believes that none of its business segments is dependent 
upon a single customer or a few customers, the loss of which would have a 
material adverse effect on the Company's results of operations.

       Financial information relating to the Company's industry segments and a
breakdown of the Company's sales by geographic region is detailed in Note L in
the accompanying consolidated financial statements and is incorporated herein. 

SOURCES OF SUPPLY AND BACKLOG

       The raw materials and components used in the development and 
manufacture of MVS's products and systems are generally available from 
domestic suppliers at competitive prices; fabrication of certain major 
components is subcontracted for on an as-needed basis. MVS has not 
experienced any significant difficulty in obtaining adequate supplies and 
equipment to perform under its purchase orders and agreements. 

       MVS also purchases certain computer components, used in their products 
and systems, from both Socrates and JMR. Furthermore, Socrates purchases 
certain memory modules used in its computer systems directly from JMR.

       All materials and components used by Socrates and JMR are available 
from numerous sources of supply. The Company does not foresee any shortage of 
these materials.

       For the year ended September 30, 1996, the Company's backlog was
approximately $5 million. The Company does not believe that its backlog at 
any specific time is necessarily indicative of its future business.

CUSTOMER SERVICE AND SUPPORT

       The Company warranties certain products and systems for 12 months and
provides technical personnel on-site, if required, during the warranty period.
The Company, however, endeavors to complete warranty service repairs at its own
facilities in order to minimize costs. To date, warranty costs, which are 
accrued by the Company at the time of sale, have not been material.

                                                                             8
<PAGE>

PATENT, TRADEMARK, COPYRIGHT AND PROPRIETARY RIGHTS

       This section relates principally to the Company's Canadian operations.

       The Company is a non-exclusive worldwide licensee of the patented welding
sensor technology owned by the National Research Council of Canada ("NRC"). The
welding sensor is patented (16 claims) in Canada and the U.S. (U.S. Patent
No. 4,859,829, August 22, 1989) and patents are pending in Japan and Western
Europe. The Company entered into the license agreement with NRC in June 1987 and
the agreement expires upon the expiration of the patent in August 2006. The
license agreement requires a minimum annual royalty payment to NRC of $20,000
per year and three percent of sales of products incorporating the patent. 

       On April 11, 1995, the Company was issued a patent (U.S. Patent
No. 5,406,372) for its lead inspection system for inspecting parameters of leads
on quad flat-pack (QFP) computer chip packages. The Company's lead inspection
system comprises a lead scanner assembly including a sensor head arrangement, a
carriage means for moving the sensor head, a support table and a tray means for
holding at least one QFP package. The lead inspection system permits the
thorough inspection of such lead qualities as clearances, bent lead conditions,
overall lead geometry and coplanarity of the leads of a flat-pack device without
removing it from a standard tray. Such an approach provides that there is no
possibility of further lead damage by the inspection system since there is no
device manipulation. The Company believes that this patented invention
simplifies the handling of complete trays instead of individual devices. The
Company can make no assurances that its patented invention will prove to be
financially beneficial. 

       U.S. and international patents are pending for the 17 claims on the 
robotic guidance technology applicable to the articulated arm robot invented 
by a research team at the University of Waterloo. The exclusive worldwide 
licensee of the technology is Manufacturing Research Corporation of Ontario 
("MRCO") and the Company is the worldwide sub-licensee of the technology. The 
Company entered into the sub-license agreement with MRCO in February 1994 and 
the agreement expires in February 2004. The sub-license agreement requires a 
minimum annual royalty of $20,000 per year and five percent of sales of 
products incorporating the technology, plus a two percent royalty on any 
sales under OEM (original equipment manufacturer) contracts. 

       As a general policy, the Company does not patent its vision processing
technology as a result of the fast evolution of the relevant electronic
circuitry.  Properly packaged with software kernel, imaging routines and user
manuals, these processors are a product in themselves. The Company may decide,
at a later stage, to market these high performance processors to the general
machine vision market. In this case, some of the key technology may be patented.
Failure of the Company's proposed patents, trademark and copyright applications
may have a material adverse impact on the Company's business. Except as may be
required by the filing of patent, trademark and copyright applications, the
Company will attempt to keep all other proprietary information secret and to
take such actions as may be necessary to insure the results of its development
activities are not disclosed and are protected under the common law concerning
trade secrets. Such steps will include the execution of nondisclosure agreements
by key Company personnel and may also include the imposition of restrictive
agreements on purchasers of the Company's products and systems. There is no
assurance that the execution of such agreements will be effective to protect the
Company, that the Company will be able to enforce the provisions of such
nondisclosure agreements or that technology and other information acquired by
the Company pursuant to its development activities will be deemed to constitute
trade secrets by any court of competent jurisdiction.

       In a letter dated March 16, 1995, Robotic Vision Systems, Inc. 
("RVSI"), a competitor of the Company in the lead scanning equipment market, 
made a charge of patent infringement and threatened litigation against the 
Company based on a patent that it allegedly owns. On February 27, 1992, RVSI 
sent the Company a similar notice of its claim that the Company's scanning 
equipment infringed RVSI's patent rights. The Company believes that its lead 
scanning products and systems do not infringe RVSI's patent 

                                                                             9
<PAGE>

rights and that RVSI's asserted patent is invalid. The Company so informed 
RVSI in 1992 and again on March 30, 1995. The Company has been informed that 
RVSI has made similar claims to the Company's present and prospective 
customers in the past and believes that the Company has lost United States 
customers as a result of those claims. The Company believes that RVSI's 
claims are without merit and is considering its legal options with respect to 
RVSI's conduct in this matter. 

COMPETITION

       The Company believes that companies that produce vision-based robotic and
welding sensor products and systems have evolved over the past ten years into a
more consolidated and intensely competitive industry. The Company is aware that
a substantial number of companies entered the industry in the years 1984 through
1996 and that most of these were relatively new privately held firms. In the
past five years, however, the number of competitors has narrowed to less than an
estimated 25 firms, which the Company believes is attributable to a large extent
to a consolidation within the industry. 

       The Company believes that there are other companies, some of which are
substantially larger and have substantially greater assets and resources than
the Company, engaged in the development of technology and products which may be
highly competitive with those of the Company, within each industry the 
Company competes in. Almost all of the companies with which the Company 
intends to compete are substantially larger and have substantially greater 
resources than the Company. It is also likely that other competitors will 
emerge in the future. The Company will compete with companies that have 
greater market recognition and broader capabilities than the Company. As a 
consequence, there is no assurance that the Company will be able to 
successfully compete in the marketplace. 

EMPLOYEES

       At the year ended September 30, 1996, the Company employed approximately
90 persons, all of whom were full-time employees. Of these full-time employees,
approximately 18 were engaged in management, administration and finance, 57 in
development and manufacturing and 15 in marketing and sales. 

       The Company believes that its future success will depend in large part 
upon its continued ability to recruit and retain highly qualified technical 
personnel. Competition for highly qualified technical personnel is 
significant, particularly in the geographic area in which the Company's 
operations are located. The Company has never experienced a work stoppage and 
none of its employees is represented by a labor organization. Management of 
the Company considers its relationship with its employees to be good. 

FORWARD-LOOKING AND CAUTIONARY STATEMENTS

       The Company and its representatives may from time to time make written or
oral forward-looking statements, including statements contained in the Company's
filings with the Securities and Exchange Commission and in its reports to
stockholders.  In connection with the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995, the Company is hereby identifying
important factors that could cause actual results to differ materially from
those contained in any forward-looking statement made by or on behalf of the
Company; any such statement is qualified by reference to the following
cautionary statements.

       The Company's operating results could be affected by a number of 
factors. They include the availability and cost of components, an unexpected 
inability to manage expenses relative to sales growth, and an inability to 
anticipate downward price pressures by customers using our products and 
services. Also, there is the potential problem of competing with companies 
having significantly greater financial, technical, and market resources than 
the Company.

                                                                            10
<PAGE>

       A significant percentage of the Company's sales to major customers
historically has occurred in the last month of a quarter.  Changes in purchasing
patterns by one or more of the Company's major customers, and the inability of
the Company to anticipate in advance the mix of customer orders and its ability
to ship the necessary quantities of product near the end of a fiscal quarter,
could result in material fluctuations in quarterly operating results.
       
       The Company participates in competitive industries marked by changing
technology, which could result in volatility of the Company's common stock
price.  Additionally, any shortfall in revenue or earnings from the levels
expected by securities analysts could have an immediate and significant effect
on the trading price of the Company's common stock in any given period. 
Moreover, it is possible the Company may not learn of such shortfalls until late
in the fiscal quarter, which could result in an even more immediate and adverse
effect on the trading price of the Company's stock.

SUBSEQUENT EVENTS

       On October 16, 1996, the Company signed an agreement with e-Net, Inc., 
under which MVSI intends to acquire e-Net, as a wholly-owned subsidiary of MVSI,
subject to obtaining a fairness opinion and the ratification by a majority of 
MVSI shareholders at a 1997 shareholders meeting.  Under the agreement, the 
Company has the right to waive obtaining a fairness opinion and ratification by 
the stockholders, if so decided by its board of directors. e-Net, a 
development stage Washington, D.C. area based telecommunications company, 
produces proprietary telecommunications products and software which allow 
individuals and organizations to execute secure, private voice communications 
across the Internet and intranets, through the use of authentication 
technology, for local, national and international telephone communications, 
information exchange and commerce.

       Among the principal terms and conditions of the proposed acquisition, 
the Company intends to exchange, on a proposed tax-free basis, 4,000,000 
shares of its common stock, for all of e-Net's 8,000,000 shares of common 
stock.  In addition, e-Net's 2,000,000 Class A Warrants and 2,000,000 Class B 
Warrants may be exercisable into a total of 2,000,000 shares of the Company's 
Common Stock.  The newly issued MVSI securities in the acquisition may not be 
sold for a 24 month period.  The chairman and chief executive officer of MVSI 
is a principal stockholder and warrantholder of e-Net;  a director of MVSI is 
also a director and a stockholder of e-Net.   Subject to consummation of the 
acquisition, which requires satisfaction of the aforementioned conditions 
precedent, MVSI intends to provide at least $5.3 million to e-Net over a 
24-month period ending in September 1998 in order to finance its business 
operations.  The acquisition agreement contains terms and other conditions 
which are customary and usual to such acquisitions.  As of September 30, 
1996, MVSI has provided e-Net $500,000 in working capital (see Notes 
Receivable in accompanying balance sheet) and on November 1, 1996, provided 
e-Net an additional $500,000 in working capital, pursuant to a promissory 
note.  Terms of the promissory note include the payment of interest at 9% per 
annum and repayment due no later than September 6, 1997.  Management intends 
to collect such amounts when due. 

       The Company received a letter, dated December 23, 1996, from outside 
legal counsel to e-NET, Inc. (the "December 23, 1996 Letter"). The December 
23, 1996 Letter, which was written on behalf of e-NET, Inc., alleges that the 
 Company has breached certain provisions of the October 16, 1996 Acquisition 
Agreement by and among the Company, e-NET, Inc. and e-NET, Inc.'s 
shareholders (the "Acquisition Agreement"). The December 23, 1996 Letter 
demands that the Company cure the alleged breaches of the Acquisition 
Agreement within any applicable cure period and states that the failure to do 
so will allow e-NET, Inc. to unilaterally terminate the Acquisition Agreement 
in accordance with its terms. The Company believes that it is not in breach 
of any provision of the Acquisition Agreement and that all of the allegations 
of breach of the Acquisition Agreement by the  Company in the December 23, 
1996 Letter are without merit. The Company is preparing a written response to 
the December 23, 1996 Letter and intends to request a meeting with e-NET, 
Inc.'s management in early January, 1997 to seek to resolve any disputes over 
the Acquisition Agreement. As of the date of this report, the Company is 
unable to determine the effects of this recent development on the 
consummation of the transactions contemplated by the Acquisition Agreement.

       On December 5, 1996, the National Association of Securities Dealers 
("NASD") expelled Stratton Oakmont Inc., the Company's former underwriter and 
former principal market maker in the Company's securities, from the 
securities industry.  The expulsion of Stratton Oakmont materially and 
negatively impacted the price and trading volume of the Company's securities. 
 The Company is uncertain as to the long-term effect that the Stratton 
Oakmont expulsion will have on the price and trading volume of its 
securities.  As of December 27, 1996, the Company had approximately 16 market 
makers, and is striving to enlist an established or major securities firm to 
be its principal market maker and investment banker. The Company believes 
that the listing of the Company's securities on the National Market System 
(NMS) of Nasdaq will assist the Company's efforts to obtain a new principal 
market maker and investment banker. The Company currently has a pending 
application to have its securities listed on the NMS. The Company can make no 
assurances as to the outcome of its pending NMS application. The Company can 
make not assurances as to the outcome of its pending NMS application.

ITEM 2.  DESCRIPTION OF PROPERTIES.

    The Company leases approximately 1,600 square feet for its principal
executive offices located at 8133 Leesburg Pike, Suite 750, Vienna, VA  22182. 

                                                                            11
<PAGE>

Base rental for the office space is approximately $2,200 per month.

    The Company leases approximately 14,000 square feet for its MVS Canadian
development and manufacturing facilities located at 4830 Cousens, Montreal,
Quebec, Canada H4S 1X7, under a lease which extends through May 1999.  The
Company operates at approximately 60 percent of capacity.  Base rental for the
premises is approximately $5,000 per month.  The lease requires the Company to
pay certain property taxes and certain operating expenses.

    The Company leases approximately 1,800 square feet for its JMR memory chip
distribution facilities located at 7000A Newington Road, Lorton, VA  22079. 
Base rental for the premises is approximately $1,000 per month.

    The Company also leases approximately 3,800 square feet of space for its 
Socrates computer integration and reselling facilities located at 800 S. 
Frederick Avenue, Gaithersburg, MD 20877.  Base rent for the space is 
approximately $5,600 per month.  The lease agreement, which expires in 
December, 2000, includes rent escalations and requires the Company to pay 
certain operating expenses. 

    The Company believes that its current and anticipated facilities are
suitable and adequate for its operations.

ITEM 3.  LEGAL PROCEEDINGS.

    In the ordinary course of conducting business, the Company is subject, 
from time to time, to certain legal proceedings concerning the Company's 
business. Management does not believe that any current legal proceedings will 
have a material impact on the Company's business or its financial statements.

    In a letter dated March 16, 1995, Robotic Vision Systems, Inc.
("RVSI"), a competitor of the Company in the lead scanning equipment market, has
made a charge of patent infringement and threatened litigation against the
Company based on a patent that it allegedly owns. On February 27, 1992, RVSI
sent the Company a similar notice of its claim that the Company's scanning
equipment infringed RVSI's patent rights. The Company believes that its lead
scanning products and systems do not infringe RVSI's patent rights and that
RVSI's asserted patent is invalid. The Company so informed RVSI in 1992 and
again on March 30, 1995. The Company has been informed that RVSI has made
similar claims to the Company's present and prospective customers in the past
and believes that the Company has lost United States customers as a result of
those claims. The Company believes that RVSI's claims are without merit and is
considering its legal options with respect to RVSI's conduct in this matter. 

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

    None. 

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

    The Common Stock has traded on the Nasdaq Small Cap Market System since
August 14, 1995, under the symbol "MVSI."  On December 27, 1996, the closing 
price of the Common Stock was $4.25  per share.  There are approximately 
1,600 shareholders of the Company's Common Stock, as last reported. The 
following table sets forth the range of high and low trading prices for the 
Common Stock, as reported on Nasdaq, for the period from August 14, 1995, the 
date of the Company's initial public offering of securities, through December 
27, 1996.
                                                             HIGH       LOW
Fiscal Year 1995
  Fourth fiscal quarter......................................$7.75     $3.50(1)
Fiscal Year 1996
   First fiscal quarter......................................$8.38     $3.88
   Second fiscal quarter.....................................$7.38     $4.00
   Third fiscal quarter......................................$9.75     $6.88

                                                                            12
<PAGE>

   Fourth Fiscal quarter.......................................$15.63    $8.00
 Fiscal Year 1997                                          
   First fiscal quarter, through December 27, 1996.............$10.75    $2.75
----------------------
(1)  Represents the initial public offering price per share on August 14, 1995.

    Holders of the Company's Common Stock are entitled to dividends when, as
and if declared by the Board of Directors out of funds legally available
therefor.  The Company does not anticipate the declaration or payment of any
dividends in the foreseeable future. The Company intends to retain earnings, if
any, to finance the development and expansion of its business.  Future dividend
policy will be subject to the discretion of the Board of Directors and will be
contingent upon future earnings, if any, the Company's financial condition,
capital requirements, general business conditions and other factors.  Therefore,
there can be no assurance that any dividends of any kind will ever be paid by
the Company.

ITEM 6.     MANAGEMENT'S DISCUSSION AND ANALYSIS  OF FINANCIAL CONDITION AND
            RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

YEAR ENDED SEPTEMBER 30, 1996 COMPARED TO YEAR ENDED SEPTEMBER 30, 1995

       The Company reported an increase in sales of $13,649,839 or 584% to
$15,987,636 for the year ended September 30, 1996 as compared to the same period
in fiscal 1995.  The increase in sales is attributable to the Company's two
acquisitions (JMR Distributors and Socrates) in the computer distribution and
reselling business, as well as an almost doubling of revenue of the Company's
laser machine vision products and systems.

       The gross margin of the Company decreased to 22% for the year ended
September 30, 1996, principally as a result of relatively lower gross profit
margins in the Company's computer distribution and reselling businesses.  These
lower profit margins have also been impacted by a decrease in excess of 75% in
worldwide memory chip prices since September 30, 1995.

       For the year ended September 30, 1996, selling expenses increased by
$367,582 (76%) to $853,577, primarily as a result of additional sales staff
hired at MVS and the Company's acquisitions of JMR and Socrates.  Administrative
expenses increased $1,417,042 (127%) to $2,532,337 for the fiscal year 1996, as
a result of increased salary expenses associated with employment agreements for
three officers which became effective February 1, 1995, as well as an increase
in the Company's overall level of operations and the acquisitions of JMR and
Socrates.

       Research and development expenditures, shown net of Canadian tax 
credits, decreased by $1,069,876 to $116,176 for the year ended September 30, 
1996, primarily due to the Company's products maturing necessitating less 
research and development.  In addition, subsequent to the Company achieving 
technological feasibility on several software development efforts late in 
fiscal 1995, the Company began capitalizing labor costs associates with these 
efforts. Management expects to begin amortizing such costs in fiscal 1997 
upon release of the associated products. Depreciation and amortization 
expenses for the year ended September 30, 1996, increased by $176,976 to 
$197,814 as a direct result of an increase in depreciable assets from the 
Company's acquisitions of JMR and Socrates and the resulting goodwill 
amortization recorded subsequent to the acquisitions.

                                                                            13
<PAGE>

       Interest income and expense and financing charges decreased by $3,927,001
from $3,504,162 for the year ended September 30, 1996.  The decrease is
primarily attributable to a reduction of $3,500,000 in interest expense from the
previous fiscal year relating to the issuance of bridge units as additional
consideration for a $500,000 bridge loan originating in June 1995. 
Additionally, the 1996 year includes interest income (net of margin loan
interest) resulting from the Company investing the proceeds from its initial
public offering in August 1995.  Both periods reflect interest on line of credit
borrowings.

       The Company has net operating loss carryforwards and tax credit 
carryforwards to offset future taxable income and taxes payable. Although the 
Company, has recognized income before income taxes through September 30, 
1996, this has not resulted in the recognition of income tax expense due to 
the existence of available net operating loss carryforwards.  Future use of 
these net operating loss carryforwards was not affected by the Company's 
acquisitions during fiscal year 1996.  However, in the event a change in 
control occurs in the future, use of all or a portion of the U.S. 
carryforwards could be affected. Moreover, as a result of the Company's 
anticipation of increasing levels of profitability, the Company may be 
required to begin paying income taxes during fiscal year 1997.

       As of September 30, 1995, the Company had established a 100% valuation
allowance against the tax benefits related to these carryforwards due to the
realizability of the tax benefits being uncertain. During fiscal year 1996,
management reevaluated the valuation allowance resulting in the recording of a
deferred tax asset (benefit) of $786,430. Additionally, in connection with the
acquisition of Socrates, Inc., a $372,000 deferred tax asset (benefit) was
recorded as a reduction of goodwill. Factors considered by the 

                                                                            14
<PAGE>

Company in this reevaluation included the Company's year-to-date earnings, 
exclusive of non-recurring expenses and adjustments, as well as anticipated 
future earnings based on increased product demand, primarily attributable to 
the awarding of significant new contracts and orders which will be completed 
in fiscal year 1997.  After recording the deferred tax asset (benefit), the 
Company continues to carry a valuation allowance approximating 67% of the 
deferred tax assets. The Company will review the valuation allowance 
quarterly to determine the future realizability of these deferred tax assets.

       The Company's fourth quarter 1996 operations were negatively impacted by
charges incurred in restructuring the Company's Canadian operations.  Management
determined the organizational restructuring to be necessary in order for the
Company to further strengthen its position in the worldwide market of
laser-based machine vision products, and to ensure continued profitability in
the future.  The restructuring included the hiring of a new management team in
operations, finance and sales and marketing, and the implementation of a revised
business plan.  Management's objective is to improve product quality, expand
product lines, increase sales and marketing efforts and revise existing cost
structures.  The Company believes these efforts will further enhance the
Company's state-of-the-art proprietary laser technology and allow the Company to
better capitalize on the rapidly growing machine vision market.  The impact of
the changes incurred, in addition to certain fourth-quarter adjustments made to
establish an accounts receivable reserve and write-off non-recoverable travel
and installation costs, can be seen in the accompanying statement of operations
as an increase in operating expenses and a sizable reduction in sales growth
during the quarter.  The effect of these items was to reduce net income for the
fourth quarter by approximately $650,000 ($0.05 per share).

       Net income for the year ended September 30, 1996 was $1,012,764 or $0.11
per share (primary EPS) and $0.09 per share (fully diluted EPS), as compared to
a net loss of $(5,481,453) or $(1.10) per share for the year ended September 30,
1995.

YEAR ENDED SEPTEMBER 30, 1995 COMPARED TO YEAR ENDED SEPTEMBER 30, 1994

       The Company reported a decrease in sales of $37,000 or 2% to 
$2,338,000 for the year ended September 30, 1995 as compared to same period 
in fiscal 1994. Of the 9 units sold in the 1995 period, 5 were manually 
operated systems and carried a unit sales price of $58,000.  The gross margin 
on sales for each period was comparable due to a relatively stable sales mix 
between scanner and welding products. 

       For the years ended September 30, 1995 and 1994, the Company derived 
40% and 43%, respectively, of its total sales from 3 and 1 customers, 
respectively. In addition, approximately 67% and 58% of the Company's sales 
in fiscal 1995 and 1994, respectively, were to customers outside the United 
States. The reduced percentage of international sales in fiscal 1995 was 
primarily attributable to sales to Texas Instruments in Dallas, Texas in 
fiscal 1995. Substantially all of such sales are transacted in U.S. dollars. 

       Selling expenses increased by $235,000 (93%) to $486,000 in the 1995 
period principally as a result of additional sales staff hired in late 1994. 
Selling expenses in the 1994 period were curtailed by the Company due to cash 
flow constraints at the time. Administrative expenses increased by $676,000 
or 154% to $1,115,000 in the 1995 period due principally to increased salary 
expenses associated with new employment agreements with three officers which 
became effective February 1, 1995. Research and development expenditures, 
shown net of tax credits, increased by $899,000 to $1,186,000, an increase of 
313%, primarily as a result of lower tax credits recognized by the Company as 
an offset to development expenses and development costs for the BGA chip 
scanner. The Company has not recorded an asset for tax credits realizable 
only as an offset against future taxable income. 

       Interest and financing charges increased by $3,458,000 to $3,555,000 
in the 1995 period principally as a result of an interest charge of 
$3,500,000 associated with the issuance of bridge units as additional 
consideration for a $500,000 bridge loan originating in June 1995 and 
interest on loans from a

                                                                            15
<PAGE>

stockholder/officer and $276,000 bank loan collateralized by research and
development tax credits. The interest expense charge of $3,500,000 from the
issuance of bridge units resulted in a corresponding credit to additional
paid-in-capital. Both periods reflect interest on line of credit borrowings. 

CAPITAL RESOURCES, LIQUIDITY AND BACKLOG

       As of September 30, 1996, the Company had working capital of $9,562,778
compared to $10,090,717 as of September 30, 1995.  The fiscal year 1996
acquisitions of JMR Distributors, Inc. and Socrates, Inc. and future expansion
of the Company's laser vision business, including continual software
development, may require increased working capital to finance increases in
inventory and accounts receivable comparable to or greater than the increase
experienced in the year ended September 30, 1996 (see Consolidated Statements of
Cash Flows).  However, with the enhanced liquidity of the Company from its 1995
public offering of securities and a June 1996 private placement transaction in
which the Company netted $600,000, the Company believes that existing cash and
cash equivalents on hand and investments will be sufficient to fund these
requirements for the foreseeable future.  The Company has no significant
short-term or long-term debt outstanding as of September 30, 1996.

       In the event that the Company consummates the acquisition of e-Net, 
the Company believes that it may have to obtain additional funding or 
financing to satisfy the long-term capital needs of the Company's subsidiary 
operations and to provide for adequate working capital reserves.

       The Company increased its bank line of credit with a Canadian bank, from
$151,000 to $360,000 for support of its Canadian operations temporary cash flow
requirements, with interest payable monthly at the prime rate plus 2% (prime was
5.75% on September 30, 1996).  At September 30, 1996 and 1995, borrowings
outstanding on the line of credit amounted to $275,735 and $150,342,
respectively.  The line of credit is collateralized by all present and future
accounts receivable, Canadian tax credits receivable and inventory.

       The Company also maintains a credit agreement with a local finance 
company for inventory financing for one of its subsidiaries.  The agreement 
provides the Company with the ability to pay certain inventory balances 
(purchases) in scheduled interest-free installments.  Borrowings outstanding 
under the agreement, at September 30, 1996, amounted to $824,238.  The 
agreement is subject to annual renewal and is collateralized by all present 
and future accounts receivable and inventory of the Company's subsidiary. 
       
       In October 1996,  the Company filed a Post-Effective Amendment to the 
Company's Form S-3 Registration Statement.  The Post-Effective Amendment 
related to the continuing resale and conversion of the Company's Class A 
Warrants previously issued in connection with the Company's initial public 
offering.  The Class A Warrants became exercisable on the effective date of 
the Post-Effective Amendment filing.  Should all 5,140,000 Class A Warrants 
and 1,000,000 Class B Warrants, plus the underwriters' purchase option for 
360,000 shares and 360,000 Class A Warrants, be exercised, the Company will 
receive the proceeds therefrom, aggregating up to $29,215,000. As of December 
27, 1996, 15,000 Class A Warrants have been exercised. The Company can make 
no assurances that any of the remaining warrants or underwriters' purchase 
option shares will be exercised.

       Through September 30, 1995, the Company had borrowed $667,000 from a 
principal stockholder/officer (Edward Ratkovich) to enable the Company to meet
its on-going cash flow requirements. These loans bear interest at 9% and are due
on demand. During fiscal year 1996, the Company repaid $524,000 on the loans to
the stockholder from operating cash flow to partially repay these loans.  Total
loans and accrued interest outstanding at September 30, 1996 and 1995, total
$222,395 and $724,556, respectively.

       While no assurances can be given, the Company believes that cash 
generated from operations, along with the Company's existing resources and 
available credit are sufficient to meet the Company's working capital and 
other financing requirements for fiscal 1997. As noted above, if the Company 
consummates the e-Net acquisition, the Company believes that it may have to 
obtain additional funding or financing to meet the long-term capital needs of 
its subsidiaries and to make proper provision for working capital. 

       At September 30, 1996, the Company's backlog was approximately $5 
million. The Company does not believe that its backlog at any specific time 
is necessarily indicative of its future business.

                                                                            16
<PAGE>

IMPACT OF INFLATION AND FOREIGN CURRENCY EXCHANGE RATES

       The Company does not believe that inflation has had a material adverse 
effect on sales or income during the past several years. Increases in 
supplies or other operating costs may adversely affect the Company's 
operations; however, the Company believes it may increase prices of its 
products and systems to offset increases in costs of goods sold or other 
operating costs. 

       A portion of the Company's operations through its Canadian subsidiary 
is transacted in Canadian dollars. The Company, however, reports its 
financial position, results of operations and cash flows in U.S. dollars.  As 
a result, the Company believes that its exposure to foreign currency 
fluctuations or deterioration is limited. 

SEASONALITY

       Based on its experience to date, the Company believes that its future
operating results may be subject to quarterly variations based on a variety of
factors, including seasonal changes in the weather, especially in its Canadian
operations. Such effects may not be apparent in the Company's operating results
during a period of expansion. However, the Company can make no assurances that
its business can be significantly expanded under any circumstances. 

                                                                            17
<PAGE>

ITEM 7.  FINANCIAL STATEMENTS.
MVSI, INC. AND SUBSIDIARIES
CONTENTS

    
     Report of Independent Certified Public Accountants                     23
     Consolidated Financial Statements 
              Consolidated Balance Sheets                                   24
              Consolidated Statements of Operations                         25
              Consolidated Statements of Stockholders' (Deficit) Equity     26
              Consolidated Statements of Cash Flows                         27
              Notes to Consolidated Financial Statements                 28-43




                                                                            18
<PAGE>


ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE.

    None. 

ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
         COMPLIANCE WITH 16(a) OF THE EXCHANGE ACT.

    Item 9 is hereby incorporated by reference to the registrant's S-3 
Registration Statement, and related Prospectus, Registration File No. 
33-89194, declared effective with the Securities and Exchange Commission 
("Commission") on October 16, 1996, and the registrant's Proxy Statement to 
be filed with the Commission on or prior to January 31, 1997. 

ITEM 10. EXECUTIVE COMPENSATION.

    Item 10 is hereby incorporated by reference to the registrant's S-3 
Registration Statement, and related Prospectus, Registration File No. 
33-89194, declared effective with the Securities and Exchange Commission 
("Commission") on October 16, 1996, and the registrant's Proxy Statement to 
be filed with the Commission on or prior to January 31, 1997. 

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

    Item 11 is hereby incorporated by reference to the registrant's S-3 
Registration Statement, and related Prospectus, Registration File No. 
33-89194, declared effective with the Securities and Exchange Commission 
("Commission") on October 16, 1996, and the registrant's Proxy Statement to 
be filed with the Commission on or prior to January 31, 1997. 

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

    Item 12 is hereby incorporated by reference to the registrant's S-3 
Registration Statement, and related Prospectus, Registration File No. 
33-89194, declared effective with the Securities and Exchange Commission 
("Commission") on October 16, 1996, and the registrant's Proxy Statement to 
be filed with the Commission on or prior to January 31, 1997. 

ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K.

    A.   Exhibits. 

    The following is a list of exhibits incorporated by reference to the 
registrant's S-3 Registration Statement, and related Prospectus, Registration 
File No. 33-89194, declared effective with the Securities and Exchange 
Commission ("Commission") on October 16, 1996, and the registrant's SB-2 
Registration Statement, Registration No. 33-89194, as declared effective by 
the Commission on August 14, 1995: 

 1.0  Form of Underwriting Agreement.
 1.1  Selected Dealers Agreement.
 1.2  Form of Agreement Among Underwriters.
 3.0  Certificate of Incorporation, filed April 12, 1994.
 3.1  By-laws, as amended.
 4.0  Specimen Copy of Common Stock Certificate.
 4.1  Form of Class A Warrant Certificate.
 4.2  Form of Class B Warrant Certificate.
 4.3  Form of Underwriter's Purchase Option.
 4.4  Form of Warrant Agreement.
 5.0  Opinion of Thomas T. Prousalis, Jr., Esq. for Registrant.
10.0  Stock Purchase Agreement and Plan of Reorganization, dated November 1, 
      1994.
10.1  Employment Agreement, Edward Ratkovich.
10.2  Employment Agreement, Louis K. Lukanovich.
10.3  Employment Agreement, Bojko D. Vodanovic.
10.4  Texas Instruments Incorporated Agreement, dated April 1, 1994.
10.5  Possehl Hong Kong Precision Machining Ltd. Agreement, dated April 28, 
      1994
10.6  NJC Technical Letter, dated July 21, 1994.
10.7  NRC License Agreement, dated September 12, 1986.
10.8  MRCO License Agreement, dated February 25, 1994.
10.9  United States Patent, Number 5,406,372, dated April 11, 1995.
10.10 Consent and Waiver, dated June 30, 1995.
24.0  Consent of Thomas T. Prousalis, Jr., Esq. is contained on page II-7 of 
      the 

                                                                            19
<PAGE>

      Registration Statement.
24.1  Consent of Grant Thornton LLP is contained on page II-8 of the 
      Registration Statement.
25.0  Power of Attorney appointing Edward Ratkovich is contained on page II-6 
      of the Registration Statement.

  B.  Reports on Form 8-K. 

    No reports on Form 8-K were filed during the fourth quarter ending
September 30, 1996. 

                                      SIGNATURES

    Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                      MVSI, INC.

December 30, 1996

                                       By:    EDWARD RATKOVICH  
                                             ------------------
                                               Edward Ratkovich
                                            Chairman of the Board

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

           SIGNATURE                        TITLE                     DATE
           ---------                        -----                     ----
      EDWARD RATKOVICH         Chairman of the Board, President,  December 30,
    -------------------        Chief Executive Officer                1996
      Edward Ratkovich         [Principal Executive Officer]

      BARRY J. HATFIELD        Vice President, Assistant          December 30,
    --------------------       Secretary, Director                    1996
      Barry J. Hatfield        

     MARK J. MCKNIGHT          Chief Financial Officer,           December 30
    --------------------       Controller, Assistant Secretary        1996
     Mark J. McKnight          [Principal Financial Officer]

                               Vice President, Secretary,         December 30,
    -------------------        Director                               1996
     Boyko D. Vodanovic

       EDWARD P. ROBERTS       Director                           December 30,
      -------------------                                              1996
       Edward P. Roberts

 CLIVE G. WHITTENBURY, PH.D.   Director                           December 30,
 ---------------------------                                           1996
  Clive G. Whittenbury, Ph.D.


                                                                            20