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 Ended December 31, 1996

                          Commission File No. 000-28520

                                 n-VISION, INC.
                                 --------------
                (Name of Registrant as specified in its Charter)

                  Delaware                                  54-1741313
                  --------                                  ----------
(State or other jurisdiction of                 (I.R.S. Employer Identification
incorporation or organization)                              Number)

 7680 Old Springhouse Road, Madison Bldg., First Floor, McLean, Virginia 22102
               (Address of principal executive office) (Zip Code)

                 Registrant's Telephone Number: (703) 506-8808

             SECURITIES REGISTERED UNDER SECTION 12(b) OF THE ACT:
                                      NONE

              SECURITIES REGISTERED UNDER SECTION 12(g) OF THE ACT:
                     Common Stock, par value $0.01 per share
                     ---------------------------------------
                                Class A Warrants
                                (Title of Class)

         Check whether the Registrant  (1) has 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 Issuer was required to file such reports),  and
(2) has been subject to such filing requirements for the past 90 days.

                                                       Yes (X) No ( )

         Check if there is no  disclosure  of  delinquent  filers in response to
Item 405 of  Regulation  S-B in this  Form  10-KSB,  and no  disclosure  will be
contained,  to the best of the  Registrant's

<PAGE>


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.
( )

         The  Registrant's  revenues for its most recent fiscal year (1996) were
$1,095,894.

As of February 28, 1997, the aggregate  market value of the voting stock held by
non-affiliates of the Registrant was $1,405,475.

         As of February 28,  1997,  the  Registrant  had  outstanding  5,312,625
shares of Common Stock.


                       DOCUMENTS INCORPORATED BY REFERENCE
         Portions of the Annual Report to Stockholders for the fiscal year ended
December 31, 1996 (the "1996 Annual  Report") is  incorporated by reference into
Part II and Part III of this Form 10-KSB.  Portions of the Proxy  Statement  for
the 1997  Annual  Meeting of  Stockholders  (the  "1997  Proxy  Statement")  are
incorporated by reference into Part III of this Form 10-KSB.

                                      -2-


<PAGE>


                                     PART I
                                     ------
ITEM 1.  BUSINESS

         (a)       General.

                  (1) n-Vision,  Inc. (the "Company") was incorporated under the
laws of the State of Delaware  on  September  16,  1994.  The  Company  designs,
develops,  manufactures and markets  state-of-the-art,  proprietary 3D immersive
displays for use in advanced visualization applications.

                  (2) No material changes have occurred in the Company's mode of
conducting business in the last three fiscal years.

         (b)       Description of Business.

         n-Vision,  Inc., a Delaware  corporation,  was established in 1988 as a
division  of  Advanced  Technology  Systems,  Inc.  (ATS),  a  McLean,  Virginia
information  technology  company.  The Company was incorporated on September 16,
1994,  and acquired all rights,  title and interest in the Virtual  Reality (VR)
products  and  systems  from ATS.  The Company is a premier  manufacturer  of 3D
Immersion Displays for use in advanced visualization  applications.  The Company
registered  the sale of its common  stock and  warrants to the public and became
subject to the filing  requirements of the Securities and Exchange Commission on
May 28, 1996.  Its  corporate  headquarters  is located at 7680 Old  Springhouse
Road,  First  Floor,  McLean,  Virginia  22102,  and  its  telephone  number  is
703-506-8808.

         The  Company's  products  and  systems  are  marketed  worldwide,   but
principally to customers in North America,  Europe,  and the Pacific Rim. At the
beginning of the 1996 fiscal year, the Company was focused on manufacturing  and
marketing the Datavisor 10x, a high  performance Head Mounted Display (HMD). The
Company  completed and began marketing the second generation HMDs, the Datavisor
HiRes and the Datavisor VGA. The Datavisor HiRes is an opto  mechanical  concept
first used in the  Datavisor  10x and offers  additional  features  at a reduced
cost.  The  Datavisor  VGA also  includes the new features and utilizes  special
electronics  to  address  the  lower  resolution  needs  of  the  less  powerful
workstations  and personal  computers that operate in the VGA  environment.  The
Company  has  also  completed  the  development  of the  Virtual  Binoculars,  a
hand-held  display device  available in both a high resolution  format and a VGA
format.  This  product  appears to have a potential  market in military and ship
training systems.

         In the third quarter of 1996 the Company  introduced  the Datavisor 80,
which maintains high resolution capability but offers an expanded field of view,
up to 120 degrees.  The first model was delivered to NASA in November 1996 and a
second unit was delivered in early

                                      -3-

<PAGE>

January,  1997. The Company entered the under $10,000  market by  announcing  an
agreement  with  Virtuality  plc of England to resell an LCD-based  HMD,  called
the Visette Pro, worldwide.

         The Company  currently  has 14  full-time  employees and  no  part-time
employees.  The company is not unionized,  and had one person depart the company
in the past year. The company feels relations with its employees are good.

         The Company has  developed  its  marketing in three areas.  First,  the
products have been marketed  through its reseller  program in the  international
market.  Division  Ltd.,  Virtual  Presence Ltd.,  both in England,  and Virtual
Reality Technologies Gmbh of Germany, have been engaged as resellers.  In Japan,
Solidray  Co. Ltd.  has been the  company's  representative  and  reseller.  The
company has sought representation  overseas to reduce demonstration expenses and
other marketing  costs.  Demonstrations  are critical to success and maintaining
relationships  with  organizations  in Europe and Japan have been  important  in
reaching these markets with timely responses. Each distributor is trained in the
use of the Company's products.

         Second,  the  United  States  market has been  characterized  by direct
selling and sales of the company's  products to  integrators  that are using the
products as a component of or in support of various  programs.  While  corporate
and  educational  sales  have  tended to be direct  sales  after  demonstration,
integrators  often must have the products  demonstrated  or  integrated  for the
final customer. The final customer has often been the U.S. Government.

         To execute the third  marketing  approach  the company  entered into an
agreement  with  Virtuality  Ltd. to resell their LCD product with a distributor
mark-up,  which performs modestly at a resolution of 640x480 pixels. The product
offers a low end entrance for customers  shopping on a price driven budget.  The
product sells for under  $10,000,  and all follow-up  support is provided by the
manufacturer.  The Company views these customers as potential trade-up customers
as their  applications  and products mature.  The relationship  also extends our
product line into the next lower tier market. At present, the agreement does not
transfer proprietary rights to the Company.

         The major suppliers for the Company's  products  are:  Rank Brimar Ltd.
of England,   and  Thomas  Electronics  Inc.   for   high  resolution  miniature
cathode ray tubes.  The supply had been critical in early 1996 and threatened to
slow delivery of products,  which led  the  Company to  expand  its  sources  of
supply.   Another   important  supplier  is   Apex  Precision,  Inc.,  a   local
company that  supplies  machined  parts as required.   The Company has excellent
relationships with this supplier and expects no change in the relationship.

         The Company extends terms of net 30 days.  Overseas sales are quoted in
U.S. Dollars to reduce currency risk. The Company grants distributors a right to
return products  within limits.  During the past fiscal year no products sold to
distributors have been returned.  Federal sales often take longer to collect due
to the  bureaucratic  nature of the Federal  Government  and the extra  approval
channels usually  encountered.  All receivables due from the Federal  Government
have been collected.

                                      -4-

<PAGE>

         The  Company's  customers are diverse and none by itself is material to
the company. Even the Federal Government is internally diverse with sales to the
U.S. Navy,  NASA, the Department of Energy,  and the U.S. Air Force. The company
has no contracts subject to renegotiation with the Federal Government.

         The Company is not  required to obtain  government  approval for any of
its products, and there are no restricting regulations concerning the products.

         The Company has entered the high-value  immersive display market, which
is  dominated  by emerging  commercial  uses of  head-mounted  displays in large
corporations  such as the  automotive  and  aerospace  industries  and the  U.S.
Government. The use of the products has moved swiftly in the automotive industry
as highly  sophisticated  ergonomic design models can be exercised using virtual
driving and  viewing.  The  aerospace  market is divided  into the  military and
civilian  training  applications  for pilots and the design  application  market
developing now as the automotive market developed in 1995 and 1996. The military
services  of  Europe  and the  United  States  are  experimenting  with  mission
rehearsal  systems and other  training  applications.  The  medical  market is a
high-value developing market, but embryonic. Inquiries are now being received as
awareness of  potential  applications  is being  stimulated  by virtual  reality
booths at medical  conventions.  Inquiries are being  received now with explicit
thoughts and  applications.  This market has  potential as high  resolution  and
quality  are  essential  to success.  Geographically,  the markets in Europe and
Japan are developing and evolving, with the European market ahead of the rest of
the world. The Company has three distributors in Europe and two in Japan.

         The Company's major competitor for the high-end federal systems and
military applications is Kaiser Electro-Optics, Inc. ("Kaiser"). Commercial
competitors include Fakespace, Inc. and Virtual Research Systems Inc.

         In the Federal  Government  market,  the Company can underprice  Kaiser
when it competes  head-to-head  or when it has the  opportunity to compete.  The
size, history,  and presence of Kaiser in the Federal Government market, and the
military  market in particular,  make it a major  competitor as it uses superior
marketing resources to obtain long-term development and supply contracts. Kaiser
also has  developed  many  specialized  products for the military  market.  This
places the  company at a  disadvantage  in this  market,  especially  for custom
products.  The company can and does compete well  head-to-head  for HMD business
and can dramatically  undersell Kaiser for comparable quality.  Federal employee
awareness of the Company and its products is limited, and needs continuing sales
and marketing emphasis.

         The Company competes in the commercial market but has limited resources
to cover the market as direct sales through demonstration are usually needed due
to the complexity and nature of the products.  The Company has found that it can
compete  head-to-head  successfully,  offering superior quality at a competitive
price. On the lower end price may cause some purchasers to select a dramatically
less  expensive  product at half the price but with  significant  degradation in
viewing  quality.  The Company signed a distribution  agreement with  Virtuality
Inc. to market a low end  display to cover this part of the market.  The Company
believes  these  customers  will be

                                      -5-

<PAGE>

a  source  of  trade-up  business  if  their applications  develop successfully.
This  strategy is designed to shore up and address the  customer  base  that  is
cost-driven.  It is an area of the market that is  perceived  by  management  as
being  inadequately  addressed.  The  Company's product warranty terms include a
full one-year  warranty against all defects and failure under normal usage.

ITEM 2.  DESCRIPTION OF PROPERTY

         (a)  The  Company  leases  approximately  15,000  square  feet  for its
headquarters and operations in facilities  located at 7680 Old Springhouse Road,
Madison Bldg., First Floor, McLean,  Virginia 22102. The lease term is three (3)
years and will expire on February  29, 2000.  The lease  requires the Company to
pay certain customary  property taxes and operating  expenses.  The Company pays
$9.00 per square foot for the leased space with a 3% rent increase per year.

         The Company subleases  approximately 40.5%  (approximately 6,071 square
feet) of the space to two subtenants.  The Company believes that its current and
anticipated facilities needs are suitably met with this space and that the space
is adequate for current operations and future growth.

         (b) The  Company has made no real  estate  investments  during the 1996
fiscal year.

ITEM 3.  LEGAL PROCEEDINGS

         The Company is not a party to any legal proceedings and, to the best of
its  information,  knowledge  and  belief,  none  is  contemplated  or has  been
threatened.

ITEM 4.  SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS

         No matters  were  submitted  to a vote of the  stockholders  during the
fourth  quarter of the 1996 fiscal year.

                                      -6-

<PAGE>


                                     PART II
                                     -------

ITEM 5.  MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS

         (a)     Market Information.

         The  company's  Common  Stock and Class A Warrants  have  traded on the
Nasdaq Stock Market Small Cap Market since May 29, 1996 under the symbols "NVSN"
and "NVSNW"  respectively.  Prior to an initial public  offering of Common Stock
and Class A Warrants  in May 1996,  there had been no market  for the  company's
Common  Stock or Class A  Warrants.  On December  31,  1996 the stock  closed at
$0.8125 per share and the Warrants closed at $0.09375 per share. The table below
shows  the high and low  trading  prices by  quarter  for the  Common  Stock and
Warrants  during the 1996  fiscal  year.  On  December  6, 1996,  the  Company's
investment  banker and  underwriter of the Company's  public offering was barred
from the  national  exchanges  and has  since  ceased  making  a  market  in the
Company's securities. This event has had, and may have, an adverse effect on the
Company's securities.


                         Common        Common
                         Stock          Stock        Warrants      Warrants
                      ----------------------------------------------------------
                          HIGH           LOW           HIGH           LOW
                          ----           ---           ----           ---
 First Quarter            N/A            N/A           N/A            N/A
 Second Quarter          10.00          7-1/2         3-1/8           3/4
 Third Quarter           7-7/8         3-1/16         3-1/2           1/2
 Fourth Quarter          7-7/8           1/4          3-1/2           3/32

These quotations reflect inter-dealer prices, without retail mark-up,  mark-down
or commission and may not necessarily represent actual transactions.

         (b)     Holders.

         As of February 28, 1997,  there are  approximately 24 holders of record
of the Common  Stock and 4 holders of record of the  Warrants.  Included  in the
number of holders of record are approximately 678 beneficial securities holders.

         (c)     Dividends.

         There was no dividend  paid  during the past two years.  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

                                      -7-

<PAGE>

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

         The  information  required by this Item is incorporated by reference to
the  section  captioned  "Management's  Discussion  and  Analysis  of  Financial
Condition and Results of Operations" in the Company's 1996 Annual Report.

ITEM 7.  FINANCIAL STATEMENTS

         The information required by this Item is incorporated by  reference  to
pages 3  through  12 of the Company's 1996 Annual Report.

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

         None.


                                    PART III
                                    --------

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

         The  information  required by this Item is incorporated by reference to
the section captioned "Voting  Securities and Principal Holders Thereof" and the
section captioned "Election of Directors" in the Company's 1997 Proxy Statement.

ITEM 10. EXECUTIVE COMPENSATION

         The  information  required by this Item is incorporated by reference to
the section  captioned  "Executive  Compensation"  in the  Company's  1997 Proxy
Statement.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
         AND MANAGEMENT

                                      -8-

<PAGE>

         The  information  required by this Item is incorporated by reference to
the section captioned  "Voting  Securities and Principal Holders Thereof" in the
Company's 1997 Proxy Statement.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The  information  required by this Item is incorporated by reference to
the section  captioned  "Election  of  Directors"  in the  Company's  1997 Proxy
Statement.

                                      -9-

<PAGE>


ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

         List of Exhibits.
         -----------------

         3(i)     Certificate of Incorporation of the Company.
         3(ii)    Bylaws of the Company.
         10       Material Contracts (listed in Exhibit Index)
         11*      Computation of per Share Earnings
         13*      Portions of 1996 Annual Report Incorporated By Reference
         24*      Consent of Grant Thornton
         27*      Financial Data Schedule

         *        Filed herewith.

         (a)      Exhibits.

         All exhibits  are listed in the Exhibit  Index,  which is  incorporated
herein by reference.


         (b)      Reports on Form 8-K.

         The Company has filed no Forms 8-K during the  quarter  ended  December
31, 1996.


                                      -10-

<PAGE>


                                   SIGNATURES

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

                                 n-VISION, INC.
                                 --------------
                                  (Registrant)

By:  /s/______________________________                    March 27, 1997
        Delmar J. Lewis
        Chairman of the Board
        Chief Executive Officer


Dated:  March 27 1997

         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 and in the capacities and on the date indicated.

                                 n-VISION, INC.
                                 --------------
                                  (Registrant)

By: /s/________________________________                Dated: March 27, 1997
        Claude H. Rumsey, Jr.
        Director

By: /s/________________________________                Dated: March 27, 1997
        Mao-Jin Chern, Ph.D.
        Director

By: /s/_______________________________                 Dated: March 27, 1997
        Robert B. Hamilton, C.P.A.
        Executive Vice President,
        Chief Financial Officer and Secretary
        Director

By: /s/_______________________________                 Dated: March 27, 1997
        Christopher J. Lewis
        President and Chief Operating Officer
        Director


                                      -11-

<PAGE>



By: /s/_______________________________                 Dated: March 27, 1997
        Delmar J. Lewis
        Chairman of the Board
        Chief Executive Officer


                                      -12-

<PAGE>
                                                                   EXHIBIT INDEX

                                 n-VISION, INC.

                             EXHIBITS TO FORM 10-KSB

<TABLE>
<CAPTION>


Exhibit                                                                             Sequentially
Number                                Identification                               Numbered Page
-------                               --------------                               -------------
<S><C>
 3(i)       Certificate of Incorporation of the Company (incorporated by                N.A.
            reference to Exhibit 3.0 to the Registration Statement of the
            Company on Form SB-2 filed on April 2, 1996, Registration No.
            333-3098)

 3(ii)      By-Laws of the Company (incorporated by reference to Exhibit 3.2            N.A.
            to the Registration Statement of the Company on Form SB-2 filed on
            April 2, 1996, Registration No. 333-3098)

 10(1)      Employment Agreement, Delmar J. Lewis (incorporated by reference            N.A.
            to Exhibit 10.0 to Amendment No. 1 of the Registration Statement
            of the Company on Form SB-2 filed on April 19, 1996, Registration
            No. 333-3098)

 10(2)      Employment Agreement, Christopher J. Lewis (incorporated by                 N.A.
            reference to Exhibit 10.1 to Amendment No. 1 of the Registration
            Statement of the Company on Form SB-2 filed on April 19, 1996,
            Registration No. 333-3098)
 10(3)      Employment Agreement, Robert B. Hamilton, C.P.A. (incorporated by           N.A.
            reference to Exhibit 10.2 to Amendment No. 1 of the Registration
            Statement of the Company on Form SB-2 filed on April 19, 1996,
            Registration No. 333-3098)
 10(4)      Asset Purchase Agreement, dated November 1, 1994 (incorporated by           N.A.
            reference to Exhibit 10.3 of the Registration Statement of the
            Company on Form SB-2 filed on April 2, 1996, Registration No.
            333-3098)
 11.00      Statement re: Computation of earnings per share

 13.00      Portions of 1996 Annual Report Incorporated By Reference
 24.00      Consent of Grant Thornton LLP
 27.00      Financial Data Schedule

</TABLE>

                                      -13-